Audit Planning Memorandum
AUDIT PLANNING AND CONTROL
1.0 LEARNING OBJECTIVES
After studying this chapter, readers should be able to understand:
! The general concept of audit strategy.
! The Importance of audit strategy as an effective plan for an audit.
! Internal control systems, evaluation and assessment.
! Audit documentation.
! Relationship with experts.
! Audit risks and its relative importance to audit.
! Components of audit risks.
! How to assess audit risks.
1.1 INTRODUCTION
Auditing has developed over many years, but it was not until the late nineteenth century (with the formation of joint stock companies, the predecessors to present day limited liability companies) that auditing became widely accepted in the
United Kingdom and by extension, in other parts of the world. Individual firms of accountants have refined their approach to auditing from time to time and the professional accountancy bodies in various countries have published guidelines to their members on auditing procedures.
1.2 CONCEPTS OF AUDIT STRATEGY
Audit strategy is directed to the gathering of relevant and reliable audit evidence in order to support the expression of an opinion on the accounts. In carrying out an audit assignment, the auditor should:
(a) Consider his responsibilities as defined in the terms of engagement;
(b) Familiarise himself with the client’s business and organisation;
(c) Obtain a preliminary understanding of the principal features of the client’s accounting system and internal control procedures;
(d) Determine and record the audit strategy to be adopted;
(e) Where it is proposed to carry out a detailed evaluation of all or certain internal controls with a view to placing some reliance on such controls, obtain a more detailed description of the accounting system and internal control procedures and review selected transactions to confirm that he has understood and recorded the system properly;
1
ADVANCED AUDIT AND ASSURANCE
2
(f) Review critically and evaluate those aspects of the client’s
1.0 LEARNING OBJECTIVES
After studying this chapter, readers should be able to understand:
! The general concept of audit strategy.
! The Importance of audit strategy as an effective plan for an audit.
! Internal control systems, evaluation and assessment.
! Audit documentation.
! Relationship with experts.
! Audit risks and its relative importance to audit.
! Components of audit risks.
! How to assess audit risks.
1.1 INTRODUCTION
Auditing has developed over many years, but it was not until the late nineteenth century (with the formation of joint stock companies, the predecessors to present day limited liability companies) that auditing became widely accepted in the
United Kingdom and by extension, in other parts of the world. Individual firms of accountants have refined their approach to auditing from time to time and the professional accountancy bodies in various countries have published guidelines to their members on auditing procedures.
1.2 CONCEPTS OF AUDIT STRATEGY
Audit strategy is directed to the gathering of relevant and reliable audit evidence in order to support the expression of an opinion on the accounts. In carrying out an audit assignment, the auditor should:
(a) Consider his responsibilities as defined in the terms of engagement;
(b) Familiarise himself with the client’s business and organisation;
(c) Obtain a preliminary understanding of the principal features of the client’s accounting system and internal control procedures;
(d) Determine and record the audit strategy to be adopted;
(e) Where it is proposed to carry out a detailed evaluation of all or certain internal controls with a view to placing some reliance on such controls, obtain a more detailed description of the accounting system and internal control procedures and review selected transactions to confirm that he has understood and recorded the system properly;
1
ADVANCED AUDIT AND ASSURANCE
2
(f) Review critically and evaluate those aspects of the client’s