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Audit Planning and Auditing Risks - Coggle Diagram
Audit Planning and Auditing Risks
Audit Planning
Reason for Planning
To help keep audit costs reasonable
To avoid misunderstandings with the client.
To obtain sufficient competent evidence for the circumstances.
**Gather audit evidence
Issues and considerations relevant
Understand the applicable laws and regulations
Identify related parties
Considerations of materiality and risk
Going concern issue
Staff requirements and use of experts.
** Lack of staff or knowledge
Develop overall audit strategy and audit plan
Using the work of internal auditing
Additional Value-added services such as Tax Planning, System Design and Integration, Internal Reporting Process.
Step in the Planning
Perform preliminary analytical procedures
**Check the client's integrity which is error or fraud or any numerical error and report to the Malaysia Accounting Standard.
Set materiality and asses acceptable risks
Auditors must use the information / key processes and risks to develop expectations about account balances and performance.
Expectations
Developed independently of management
Documented, along with a rationale for the expectations
Communicated to all audit team members:
Key processes to understand the competitive advantages and disadvantages.
Industry factors
Management monitors
Potential operational and financial
Assess client's business risk
Developing an audit plan
Substantive test of Transactions
Determine all sic transaction related audit objectives
If al transaction correctly recorded in the journals and posted, the auditors can be confident that general ledger totals are also correct.
To test for misstatements that may directly affect the correctness of financial statement balances.
Analytical rocedured
Purposes
Indicate possible misstatements in te financial statements
Provide substantive evidence
Test of Controls
To support auditor's assessment of the client's control risk.
Types of evidence
Examine documents, record and reports
Observe control-related activities
Make inquiries of appropriate client personnel
Re-perform client procedures
Test of details of balances
Meaning
Focus on the ending general ledger balances for balance sheet and income statement accounts.
Parts of additional designed
Test of controls and substantive test of transactions.
Analytical procedures.
Test of details of balances.
Risk Assessment Procedure
Understanding te client's business and accounting system
** What the documents or informations that company need
Reason why?
Certain inherent risks are typically common to all clients in certain industries
Many industries have unique accounting requirements that an auditor must understand to evaluate such as construction companies, railroad, non-profit organisations, financial institutions.
Risks associated with specific industry may affect the auditor's assessment of client business risk and acceptable risk.
Documentation
Client acceptance and initial planning
Competent to perform the audit
Can comply with independence and other ethical requirements
Only undertake or continue with a client relationship after careful consideration on the client's integrity.
Clients
Continuing Client
Evaluate the auditor-client relationship annually to determine whether to continue with the audit engagement.
Prospective / New Clients
Make certain inquiries of the predecessor auditor before accepting the engagement.
Define. Auditor should plan the audit work so that the audit will be performed in an effective manner.
Performed during an engagement
Testing Phase
Often done during this phase.
Completion Phase
Help auditors take a final objective look at financial statements that have been audited.
Useful as a final review for material misstatements for financial problems.
Planning Phase
Use data aggregated at the high level
To assist in determine the nature, extent and timing of work to be performed.
Auditing Risks
Characteristics of High-risk clients / companies
Components
Financial Reporting risk
Relates to the recording of transactions and the presentation of the financial data in an oirganisation
Engagement Risk
Auditors encounter by being assicuaed with a particular clients, including loss of regulation, inability of the clients to ay the auditor or financial loss.
Business Risk
Affect operations and potential outcomes of organisational activities.
Audit Risk
Auditor may provide an unqualified opinion on financial statement that are materially misstated.