Week 2 Discussion Questions
Chapters 6 & 8
1. Why is audit planning so important? What is the most important step in audit planning? Why is this step so important? Posted on wed 5/8/2013
Responded to one classmates on 5/08/2013
Auditing planning is important because it helps the auditor determine his/her approach to the audit. There are two considerations that affect the approach: 1). Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility and 2). The cost of accumulating the evidence should be minimized. Concern for sufficient appropriate evidence and cost necessitates planning the engagement. The plan should result in an effective audit approach at a reasonable cost.
The most important step in audit planning is Phase I, to plan and design an audit approach.
This step is important because this is where the auditor obtains an understanding of the entity and its environment. To adequately assess the risk of misstatements in the financial statements and to interpret information obtained throughout the audit, the auditor must have a thorough understanding of the client’s business and related environment, including knowledge of strategies and processes. The auditor should study the client’s business model, perform analytical procedures and make comparisons to competitors. The auditor must also understand any unique accounting requirements of the client’s industry.
Secondly, the auditor needs to understand internal control and assess control risk. The risk of misstatement in the financial statements is reduced if the client has effective controls over computer operations and transaction processing. The auditor identifies internal controls and evaluates their effectiveness, a process called assessing control risk. If internal controls are considered effective, planned assessed control risk can be reduced and the amount of audit evidence to be accumulated can be significantly less than...
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