CHAPTER 6 AUDIT PLANNING

OVERVIEW
AUDIT PLANNING PURPOSES OF PLANNING PLANNING AND DESIGNING AN AUDIT APPROACH ACCEPT CLIENT AND PERFORM INITIAL AUDIT PLANNING

PLANNING
Planning: auditor should plan the audit work. Two risk:
AAR = The risk that auditor have to accept that there are misstatement in FS after the audit work is finish. IR = The risk that there are misstatement in a segment before check internal control of the company.

PURPOSES OF PLANNING
To conduct audit in an efficient and timely manner To obtain sufficient and appropriate evidence To ensure adequate attention is paid to critical aspects of the audit To help audit cost at reasonable minimum level To minimize legal liability To help avoid misunderstanding with client

PLANNING AND DESIGNING AN AUDIT APPROACH

Accept client and perform initial audit planning Understand the clients business and industry

Assess client business risk

Perform preliminary analytical procedures Set materiality and assess AAR and IR Understand internal control and assess control risk Gather information to assess fraud risks

Develop overall audit planning and audit planning

ACCEPT CLIENT AND PERFORM INITIAL AUDIT PLANNING

Decides whether to accept a new client or to continue serving an existing one Identify why client wants or needs an audit Staff for the engagement is selected The procedures involved before issuing engagement letter
Letter of consent (legal requirement)

Obtain the understanding with the client

Obtain ethical clearance

Annual general meeting (official appointment)

Issue letter of engagement

ENGAGEMENT LETTER
Definition : an agreement between the auditor and client concerning the conduct of audit work and related service Purpose:
To confirm acceptance of appointment /scope of audit/form of the AR Document contractual duties Avoid misunderstanding Protect from legal liability

Content:
The objectives of the audit of FS Scope of the audit in accordance with auditing standards and other regulations Responsibilities of clients management for accounting records and preparation of FS and for the detection of errors and fraud Responsibilities of auditor to state an opinion on FS and not responsible for detection and prevention of fraud and irregularities Unrestricted access to whether records and information as requested in the audit The assistance to be provided by client personnel An agreement on audit fees Non audit services to be provided

SELECT STAFF FOR THE ENGAGEMENT

Knowledge about the client industry Adequate training, experience and competence Selecting specialists and reviewing their work Evaluate the specialists professional qualification and understand the objectives and scope of the specialists work The auditor should also consider the specialist's relationship with the client including circumstances that might impair the specialists objectivity