Chapter06(1)

Audit Planning, Understanding the Client, Assessing

Risks and Responding

Chapter 6

Lic. Rafael García O., CPA, MCP

UNIVERSIDAD LATINA

6-2

Obtención de clientes Presentación de una propuesta

Contacto con el Comité de Auditoría Contrato de Honorarios

Communicación con auditores predecesores Tópicos

Desacuerdos en relación con NIIF´s y Postulados básicos de Contabilidad Financiera.

Conocimiento del predecesor sobre la causa del cambio de auditores

Otros Este procedimiento es importante porque ayuda

a evaluar la integridad de la administración


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6-3 El proceso de auditoría--Pasos

Después de obtener un cliente, el proceso de auditoría incluye:

1. Planear la auditoría2. Obtener conocimientos del cliente y su ambiente, incluyendo el control interno.3. Evalúe los riesgos de aserción falsa material y plan los procedimientos de la auditoría extensos4. Aplique procedimientos de auditoría más allá5. Completar la auditoría6. Formarse una opinión y emitir el reporte de auditoría


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6-4

Fases de una auditoría--Diagrama


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6-5

1. Planear la auditoría Establish an understanding with the

client This is ordinarily accomplished through

use of an engagement letter Related, determine that

The firm meets professional independence requirements

There are no issues relating to management integrity

The client understands the terms of the engagement


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6-6

Items Included in Engagement Letters

Name of the entity Management responsibilities

Financial statements Establishing effective internal control over financial reporting Compliance with laws and regulations Making records available to the auditors Providing written representations at end of the audit, including

that adjustments discovered by the auditors and not recorded to the financials are not material

Auditor responsibilities Conducting an audit in accordance with GAAS Obtaining an understanding of internal control to plan audit

and to determine the nature, timing and extent of procedures Making communications required by GAAS


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6-7Engagement Letters--Optional Items

Arrangements regarding Conduct of the audit (e.g., timing, client assistance) Use of specialists or internal auditors Obtaining information from predecessor auditors Fees and billing

Other services to be provided, such as examination of internal control over financial reporting

Limitation of or other arrangements regarding liability of auditors or client

Conditions under which access to the auditors’ working papers may be granted to others


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6-8

Audit Planning—Overall Develop an overall audit strategy and

an audit plan Plan use of client’s staff Plan involvement of other CPAs Arrange for specialists On first year audits:

Communicate with predecessor auditors Establish opening balances on the

financial statements


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6-92. Obtain an Understanding of the Client and its

Environment Perform risk assessment procedures,

including Inquiries of management and others within the

entity Analytical procedures Observation and inspection relating to client

activities, operations, documents, reports and premises.

Other procedures, such as inquiries of others outside the company (e.g., legal counsel, valuation experts) and reviewing information from external sources such as analysts, banks, rating organizations, journals.


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6-10

Understanding the Client’s Business—Nature of the Client

Competitive position Organizational structure Accounting policies and procedures Ownership Capital structure Product and service lines Critical business processes Internal control


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6-11

Understanding the Client’s Business,Industry, Regulatory, and Other

Factors Competitive environment Supplier and customer

relationships Technology developments Major laws and regulations Economic conditions


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6-12

Understanding the Client’s Business—Attractiveness of the Industry

Barriers to entry Strength of competitors Bargaining power of suppliers of

raw materials and labor Bargaining power of customers


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6-13

Understanding the Client’s Business—Objectives, Strategies & Business

Risks Objectives—Overall plans Operating and financial strategies

—Operational actions to achieve objectives

Business risks—Threats to achieving objectives


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6-14

Understanding the Client’s Business--Basic Strategy

Product differentiation Cost leadership


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6-15

Understanding the Client’s Business—Measuring and Reviewing

Performance Budgets Key performance indicators Segment performance reports Balanced scorecard External parties


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6-16

Understanding the Client’s Business—Sources of

Information Inquiries of management Industry Accounting and Auditing Guides Industry Risk Alerts Trade journals and news stories Government publications Prior company annual reports and SEC

filings Prior tax returns Electronic sources Tour of plant and offices Analytical procedures


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6-17

3. Assess the Risks of Material Misstatement and Design Further Audit Procedures

Overall approach What could go wrong? How likely is it that it will go wrong? What are the likely amounts involved?

Particularly consider Inherent risks Risks of material misstatement due to

fraud (fraud risks) Design further audit procedures


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6-18

Assessing Fraud Risks Two types

Fraudulent financial reporting (management fraud)

Misappropriation of assets (defalcations) Procedures to assess fraud risks

Discussion among engagement team Inquiries of management and other personnel Planning analytical procedures Considering fraud risk factors

Incentives Opportunity Attitude


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6-19

Assessing Fraud Risks—Identifying Fraud Risks

Considerations in identifying fraud risks Type Significance Likelihood that it will result in a

material misstatement Pervasiveness


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6-20

Responding to Fraud Risks Overall response

Professional skepticism and audit evidence Assigning personnel and supervision Accounting principles Predictability of auditing procedures

Alterations in audit procedures More reliable evidence Shifting timing to year end Increasing sample sizes

Response to the possibility of management override Examining journal entries Review accounting estimates for biases Evaluating the business rationale for significant

unusual transactions


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6-21

Consideration of Fraud Throughout

the Audit Evaluating the results of audit

tests Discovery of fraud

Communication to appropriate level of management

If fraud involves senior management or material misstatement communicate to audit committee


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6-22

Design further audit procedures—1 of 2

Types Tests of controls Analytical procedures Tests of details of transactions and

balances Audit procedures

Inspection Observation Inquiry Confirmation Recalculation Reperformance


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6-23

Design further audit procedures—2 of 2

Further audit procedures should include Substantive procedures for all relevant assertions Tests of controls when the auditors’ risk assessment

includes an expectation that controls are operating effectively, or when substantive procedures alone are not sufficient

Procedures should be linked with the assessed risks of material misstatement at the relevant assertion level

Overall responses when assessed risks of material misstatement are high Heightened professional skepticism Assigning more experienced staff Assigning staff with specialized skills Providing more supervision


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6-24Objectives of Substantive

Programs for Asset Accounts

Establish the existence of assets Establish that the company has rights to

the assets Establish the completeness of recorded

assets Verify the cutoff of transactions Determine the appropriate valuation of the

assets and accuracy of related transactions Determine the appropriate financial

statement presentation and disclosure of the assets


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6-25

Transactions Affecting Accounts Receivable


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6-26

Indirect Verification of Income Statement Accounts


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6-27

Financial Statement Assertions

to the Audit


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6-28

Direction of Audit Testing


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6-29

Relationships among Audit Objectives,

Risks of Material Misstatement,

and Audit Procedures

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