[AUD] Engagement Acceptance & Planning

Engagement acceptance and continuance

1. Determine the nature and scope of engagement

2. CPA firm's ability & independence, Client's integrity & audibility

3. Communication with the predecessor auditor(must, oral / written), consent of the prospective client

    - integrity of client

    - disagreement w mgt

    - communication to audit committee regarding fraud, illegal acts, IC

    - reasons for change

 

Planning

to assess the risk of material misstatement

to determine the NTE of further audit procedures

1. understanding between CPA and client(engagement letter)

   The engagement letter should be signed and dated by the client

   1) objectives of the engagement: express opinion

   2) Mgt's resp:

       - FS, GAAP

       - ICFR

       - complies with laws and regulations

       - audibility

       - representation letter

       - correct material misstatement

       - rep letter > uncorrected immaterial misstatements

    3) Auditor's responsibilities

       - GAAS  

       - inform the audit committee

    4) limitations of the audit

       - reasonable assurance(absolute x)

       - may Material Misstatement

       - unable to form op > decline op, decline to issue a report

     5) reporting framework

     6) reference form, the content of any report

     7) other: timing, fees and billing, other service, internal auditor, specialist       

 

2. communicate with the predecessor auditor(if any)

     review of the predecessor auditor's working paper

     consistency of opening balance

 

3. Determine desired audit risk and preliminary materiality

    perform * analytical procedures to identify high-risk areas(fraud)

    developing an audit strategy > Determine the level of FS as a whole / performance M /  certain account balance

 

4. Understanding of the entity and its environment > assess inherent risk (IR)

    Procedure

    Inquires mgt > PY working papers > review internal(minutes, interim FS) / external > * analytical procedures

    IR limitation

    mgt override, human error, deliberate circumvention of controls by collusion of two or more people

    IR Risk Factor

    complexity, estimation, volume, ease of theft, industry circumstance

* Analytical Procedure
 financial info made by a study of plausible relationships among financial and non-financial data
 Trend analysis: PY <-> CY
 Vertical analysis(ratio analysis): elements within the period
 
Planning (심증: NTE)
   - Enhance understanding of the client's biz since the last audit
   - Identify high-risk areas (unusual T, unusual relationship) > to assist NTE of ST 
   - compare client financial ratio to industry average
   - compare CY sales with PY/Budget
Substantive test ( for TOD of Balance) /
Overall review (final stage)
   - reviewing FS and disclosure for unusual T or unexpected B

 

5. Understanding of internal control system > Assess control risk (CR)

   understand Design, implement

 

6. Consider Timing

   audit deadlines, timing of interim(IS account), YE(BS account) audit, inventory observation

 

7. Consider supervision of assistants

 - factors to consider: risk of MM in the audit, ability of each member, size and complexity of the company

 - supervision includes: informed on significant problems, reviewing working papers(in charge sign)

 - pre-audit meeting > plan tech & personnel aspect of the audit

                                   inform responsibilities & objectives of the procedures

                                   susceptibility of FS to MM due to error or fraud

* engagement partner(not the audit supervisor) has the primary responsibility ofr the client audit

 

8. service organization

 

9. Determine the extent of assistance to be provided during the audit

    client's personnel(accounting team), internal auditors, specialists, component auditor

    factors to consider: size and complexity, risk of material misstatement, knowledge, skill, and ability of team member

 

10. computer used in processing data

 

11. Develop a written audit Plan ( required by GAAS)

     audit plan may require modification due to changing conditions

 

* audit strategy: planning에 포함되는 범위,  preliminary assessment, the scope of the audit, outline reporting objective, any additional regulatory requirements(NET 선정이외에 다인듯)