Gt; Audit Stages
— Audit planning is a procedure which is used to see and prevent potential problems. This is done at the beginning of an audit process.
— environmental matters can be complex and may therefore require additional consideration by auditors.
— it is important to consider the auditors judgment
— it uses to determine the nature, timing and extent of audit procedures with respect to:
◦ knowledge of the business
◦ risk assessments and internal control
◦ consideration of laws and regulations
◦ using the work of an expert and some others
— the auditor should develop an audit plan for the audit in order to reduce audit risk to an acceptable low level.
— the plan includes the nature, timing and extent of audit procedures to be performed by engagement team.
— the auditor re/evaluates the planned audit procedures, based on the revised consideration of assessed risks for all or some of the classes of transactions, account balances or disclosures.
The auditor may consider the following matters to establish the audit plan:
◦ the financial reporting framework on which the financial information to be audited has been prepared
◦ industry/specific reporting requirements such as reports mandated by industry regulators.
◦ the extent to which components are audited by others auditors
◦ the nature of the business segments to be audited, including the need for specialized knowledge
◦ government policies currently affecting the conduct of the entitys bussiness> monetary, fiscal, financial incentives, etc.
◦ external factors currently> general level of economic activity, interest rates, inflation, currency revaluation, etc.
◦ important suppliers of goods and services.
◦ research and development activities
◦ transactions with related parties
◦ accounting for fair values
◦ accounting principles and industry specific practices, etc.
Audit planning: engagement letter
◦ letter that confirms the auditors acceptance of the appointment, the objective and scope of the audit, the extent of the auditors responsibilities to the client and the form of any reports
◦ this letter is the agreement between the auditor and the client.
◦ principal contents:
◦ the objective of the audit of financial statement
◦ managements responsibility for the financial statement
◦ Audit fee
◦ Deadlines
The following points are to be revealed in the engagement letter:
◦ The scope of the audit, including reference to applicable legislation, regulations, or pronouncements
◦ The form of any reports or other communication of results of the engagement
◦ Unrestricted access to records, documentation and other information requested in connection with the audit.
◦ Managements responsibility for establishing and maintaining effective internal control.
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◦ Arrangements concerning the involvement of internal auditors and other client staff.
◦ Arrangements to be made with the predecessor auditor, in any, in the case of an initial audit.
The auditor is responsible for forming and expressing a technical opinion on the financial statements with reference to the following particulars:
◦ whether they have been prepared and presented in accordance with the generally accepted accounting principles and rules
◦ whether said principles and rules have been applied in a uniform manner as to the preceding financial year.
Audit planning activities: representations
Should be obtained on specific matters and also onmatters material to the FS when other appropriate audit: evidence cannot be reasonably obtained.
Cannot substitute for other audit evidence except:
Where knowledge is confined to management
Reliance on judgement/opinion
Otherwise:
Corroboration
Consistent
Reasonable
Examples of letter of representation paragraphs:
No material irregularities
Disclosed all liabilities
No subsequent events
No plan to shut down any part of operations
No inventory is valued an more than its NRV
All charges on assets have been disclosed
Audit and Corporate Governance
Corporate Governance is a mechanism through which boards and directors are able to direct, monitor and supervise the conduct and operation of the corporation and its management in a manner that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.
CG PURPOSES
Primary: Monitor those parties within a company who control the resources owned by investors
Supporting:
- Ensure that there is a suitable balance of power of the Board of Directors (BoD)
- Make the BoD responsible for monitoring and managing the risk
- Ensure that the external auditors remain independent and free from the influence of company
- Address other issues (ethics, corporate and social responsibility, protection of whistleblowers
CG OBJECTIVIES
Primary: Contribute to improved corporate performance and accountability in creating long-term shareholder value
Supporting:
- Control the controllers by increasing the amount of reporting and disclosure to all stakeholders
- Increase level of confidence and transparency in company activities for all investors (existing and potential) and thus promote growth
- Ensure that the company is run in a legal and ethical manner
- Build in control at the top that will cascade down the organization
Key concepts of CG
Fairness; reputation; integrity; transparency/openess; responsibility; independence; accountability; honesty/probity; decision taking/judgement.
| honesty / probity | not simply telling the truth but also not being guilty of issuing misleading statements or presenting information in a confusing or distorted way | ||
| accountability | emphasis of the directors accountability to shareholders, but opens the door for discussion about the extent of their accountability to other stakeholders | ||
| independence | strong emphasis on the appointment of independent nonexecutive directors who are free from conflicts of interest and are thus able to monitor effectively the entitys and executive directors activities, ideally working closely with the external auditors | ||
| responsibility | a system of responsibility should exist whereby entity directors acknowledge their responsibilities to the stakeholders, and will take whatever corrective action is necessary in order to keep the entity focused | ||
| decision taking / judgment | the skill with which management make decisions which will improve the wealth / prosperity of the organization | ||
| reputation | built by directors, often as a result of their ability to comply with other CG concepts | ||
| integrity | straightforward dealing, honesty, and balance For financial statements to have the characteristic of integrity, this depends upon the integrity of those people who prepare them Integrity involves a person who demonstrates high moral character, is principled, professional, honest and trustworthy | ||
| fairness | taking into account the interests, rights and views of everyone who has a legitimate interest in the entity | ||
| transparency / openness | involves full disclosure of material matters which could influence the decisions of stakeholders. This means not simply openness in the reporting of information required by IFRS in the financial statements It also involves other information such as cash and management forecasts, environmental reports and sustainability reports | ||
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