Assertion / Objective Likely to Be Back on Final, Legal Less Likely

Assertion / objective likely to be back on final, legal less likely

Feb 28, 2018

7 stages of an audit

• Client acceptance, audit planning, assess RMM, develop risk response, perform risk responses, conclusion, reporting

 Audit planning

• How to conduct an effective audit
• Help keep cost reasonable

• 100% accurate audit would be too costly

• Avoid misunderstandings

• What access is needed, what you are auditing for

• Collecting sufficient appropriate audit evidence

Before client acceptance

• Risk of material misstatement

• Help reduce risk to below acceptable audit risk
• Depends on company, year condition, and client’s business

• Acceptable audit risk

• Amount of risk that can be accepted from the audit
• Set by the auditor can change based on the industry
• Who the users are going to be (large amount or importation users would want to lower risk)?

Acceptance of new clients

• Client investigation

• Look at client F/S and previous F/S, environment
• What new standards that should be apply to this

• New auditor needs to communicate with old auditor for reason why not to accept

• Need permission form clients

Continuance with a client

• Client should be review annually
• Possible reason to discontinue

• Lots of disagreement
• Client lack of integrity
• Not able to reach acceptable risk with the fees that the clients are willing to pay
• Change of independence (family member now works for the client)
• Clients expansion into new industry

Engagment letter

• Contract, outlines the terms of agreement
• Scope of the audit

• Tell client what you’re looking for (purpose that your there and what your trying to accomplish)
• F/S are not misstated and represented fairly
• Similar to a course outline (tell material of course but not the questions)

• Fees

• Try to avoid setting flat free (avoid money motivated)
• In human nature to minimize work to optimize profit

Understanding client’s business

• Understand all the business risk as well as their operating environment

• Each company has different risk involve in their industries
• Tech industry greater risk of patent and trademarks
• Law and compliance, you will need to follow

Business operations and processes

• Understanding client revenue and collection system
• Technology infrastructure

• Test if systems are reliable

Management and governance

• How much management cares
• Identify how well management is at identifying and responding to risk

• Governance actives (Internal control), are people following through with these procedures or understand them

• What is going on not what is on paper

Client objectives        

• How much management put in into compliance of F/S
• Is reliable of F/S being sacrifice for profit efficiency
• Help auditor determine what they need to focus on depending on what clients putting focus on

Performance measurement and client environment

• Leadership good predictor of what employee are going to perform like
• Unachievable goal could lead employees to think manipulating data is alright

Preliminary analytical review

• Before doing inspection check to see if any area looks out of place
• Compare to auditor forecast/expectations, industry standard, or prior years

• based on situation

...