Auditing Stages

Topics: Auditing, Audit, Financial audit Pages: 6 (2127 words) Published: March 25, 2013
The aim of this discussion is to explain how an auditor goes about the process of auditing financial statements and presents the five basic stages that the auditor performed during the financial statement audit at Maryward Primary School in Kwekwe for the year ending 31 December 2012. In order to be in a position to fulfil auditing responsibility to report on the client’s annual financial statements, the auditor followed a series of procedures and activities as required by the auditing profession. The auditor applied the following audit stages: pre-engagement activities, planning, test of controls, substantive procedures, completion and reporting. Puttick et al (2012:102) defines an audit according to Section 1 of APA as …the examination of, in accordance with prescribed or applicable auditing standards: a) financial statements with the objective of expressing an opinion as to their fairness or compliance with the identified financial reporting framework and any statutory requirements. Pre-engagement activities

There are five pre-engagement activities and considerations. The auditor at this stage performed a new client investigation in order to accept the new appointment as a way of managing conflicts and threats to the auditor. Assessments of any threats to the independence of the auditor was done as an audit engagement should not be accepted where the auditor‘s independence is compromised. The other assessment done was the business risk faced in order to avoid the risk of association with a client whose integrity is questionable and particularly where motivation exists to misstate disclosures in financial information or indulge in illegal business and fraudulent reporting practices as it likely to render the auditor’s business risk unacceptable. The factors considered during the investigation included business reputation of Maryward Primary School. An assessment of the complication of the audit assignment and the estimated time, required to finish the work was done. An engagement letter was prepared to provide the clearest record of the terms of the engagement. ISA 210 provides the contents of an engagement letter to be sent to the client to help prevent misunderstandings with respect to the engagement. Also, SAS 140 requires that an auditor should agree with the client the terms of the engagement to be undertaken and the terms should be written therefore the letter of engagement will be required whenever a new auditor appointment is accepted. The main constituent features of a typical letter of engagement are: responsibility of directors and auditors, the scope of the audit, other services, fees, Applicable law (Zimbabwe) and agreement of terms. The auditor accepted the engagement for the audit of the financial statements after the conclusion that the reporting framework was acceptable. There was an agreement between the auditor and Maryward Primary School, both parties agreed to meet when changes arise and when the auditor considers the appropriateness of the matter to do so. In preparation for the audit, the auditor had a tour to Maryward Primary School after the opening meeting with the client. Russell (2012:69) states that “a tour of the area to be audited is permissible and often times highly desirable. An auditor may tour this area as part of a pre-audit visit to review documents before or after the opening meeting.” Travel plans were made and a team of three people was identified and sent to the audit area. Planning

According to Puttick et al (2012) the auditor first considers materiality at the planning stage of the audit. The auditor made a judgement of materiality in order to plan the audit in such a way that sufficient evidence is gathered to draw up a conclusion. Planning materiality was based on the end of year financial statements and budgets. According to Millichamp (2002) materiality is material if its omission/misstatement could influence the economic decisions taken on the basis of the financial...
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