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What is the audit planning process. The Kaplan book makes it hard to follow. So far I think it is as follows;
1 – preliminary audit procedures
2 – identify risk by knowledge of business and analytical review of the F.S,budgeted figures etc…
3 – now we know risky areas = form the audit strategy – i.e. what areas to test on, who tests them.
4 – Ascertain a materiality level
5 – Audit Plan – develop procedures so that the strategy can be fulfilled.I don’t know if this is right. It could well be wrong but I am struggling to find any decent articles. Any ideas???
Many thanks
Hi,
I agree with you that it is very hard to understand what Kaplan is trying to explain on this chapter.
In my opinion.AUDIT PLANNING is the operational details of the AUDIT STRATEGY.
In the audit strategy there are 3 main items:
Scope : Knowledge of the business
Timing : When to report and what kind of report, When to visit the client
Directions : Preliminary assess the materiality – identification of high risk area – identification of the components and account balances
In Planning:
Based on the Knowledge of the Business above plus Analytical Review you assess the risk and materiality.
From here then we need to find out what procedures/strategy to decide. Whether it is all substantive test, or interim and/or final audit, analytical review or tests of details.
How many people do we need in the team,
Who should be the team member
how much work should be done
when the work should be done
What kind of audit evidence do we need ???
That is my conclusion of it.
What do you think? They say 2 brains are better than 1. 😀
Ratna1238
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Can someone explain what is materiality misstatement?
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@ srosa
An error is material if it is important enough for those reading the Financial Statements to care that it is wrong.Financial Times lexicon describes materiality in the following words:
”Information about a company that is important enough to have a bearing on that company’s share price.”
Example of Materiality
Materiality depends on the size and the nature of the item, being judged in the particular circumstances of its misstatement. For instance An error of $ 1000 in Finished Goods Inventory whose total is valued at millions of dollars is definitely meager to warrant special attention.
ISA 320:
Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
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