Audit Planning Consists Of Eight Steps

Topics: Auditing, Internal control, Audit Pages: 2 (450 words) Published: April 21, 2015
Audit planning consists of eight steps, illustrated in Table 8-1: 1. Accept the client and perform initial audit planning
2. Understand the client's business and industry
3. Assess client business risk
4. Perform preliminary analytical procedures
5. Set materiality and assess acceptable audit risk and inherent risk 6. Understand internal control and assess control risk
7. Gather information to assess fraud risks
8. Develop overall audit plan and program

8-2 Make Client Acceptance Decisions and Perform Initial Audit Planning This first step can be broken down in to four tasks:
Client Acceptance and Continuance: Not every client is acceptable. The auditor must consider the client's integrity, as well as the industry in which the client operates. In short, the audit risk must be measured against the auditor's threshhold. The CPA firm should conduct an investigation of a company to assess its desirability as a client. If the would-be client has been audited previously by another CPA firm, that firm must be contacted, with the client's permission. The auditor may even go further in the investigation by contacting other entities that have had dealings with the client, in order to further assess the client's situation. For a continuing client, the auditor must reflect upon previous relations with the client, evidence of the client's integrity, whether the audit fees have been paid (which could introduce an independence violation if the fees are one year or more in arrears), and the industry in which the client operates. Identify the Client's Reasons for an Audit: Two factors will affect audit risk--the likely statement users and their intended use of the statements. If the statements are to be used widely, the auditor will need to amass more information in the audit. Obtain an Understanding with the Client: The auditor must document the understanding of the engagement by submitting an engagement letter to the client. A good example of an engagement letter is...
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