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Hi Gromit,
1)Is it that we understand the entity and its environment via risk assessment procedure(inquiry, analytical procedure,observation and inspection)(RAP) or is it that we do so by different means and later conduct the RAP?
2)it is said that the RAP is for forming the basis for identifying and assessing the risk of material misstatement.is it that the RAP helps us in identifying the areas where there may be risk ?
3)or RAP helps us in listing the risks and then we check those risks against the criteria of the significant risk and make a further list of significant risks?and after that we design further audit procedure?
4)when are the overall strategy and detail audit plan documented?
5)when is the system evaluated and how?
I am sorry that the question went too long but I really spent days researching for the same and couldn’t really figure out what the actual process is like.Please help me out.
thank you.
1)Is it that we understand the entity and its environment via risk assessment procedure(inquiry, analytical procedure,observation and inspection)(RAP) or is it that we do so by different means and later conduct the RAP?
At RAP you do not carry out the audit so you can’t have too many audit procedures. Certainly analytical procedures would be used as these give a quick indication. Inquiry of the FD or chief accountant of any problems or major changes; last year’s audit file; general knowledge about the state of the economy and industry.
2)it is said that the RAP is for forming the basis for identifying and assessing the risk of material misstatement.is it that the RAP helps us in identifying the areas where there may be risk ?
Yes, that’s why it’s called ‘risk assessment procedure’
3)or RAP helps us in listing the risks and then we check those risks against the criteria of the significant risk and make a further list of significant risks?and after that we design further audit procedure?
Too many lists. RAP identifies risk areas, so you then design audit procedures to address those areas. So if inventory is a risk area, step up the work on inventory.
4)when are the overall strategy and detail audit plan documented?
After risk assessment and finding out about the entity, but before the audit work starts
5)when is the system evaluated and how?
I assume you mean the internal control system. This is evaluated very early on in the audit as the way the audit proceeds will depend on the assessment of the internal control. It is assessed by producing narrative/flowcharts then using an ICQ or ICEQ to evaluate whether the control objectives and control procedures are in place.
thank you Gromit.
so what I understood here is that
1)First,we understand the entity and its environment and list down the probable risk areas
2)then we conduct RAP and shortlist the risk areas(identify the significant risk areas)
3)Then we design the audit procedure and write down the overall audit strategy and immediately write down the audit plan and finish the planning phase.
4)then we evaluate the system and decide the direction of the audit(substantive strategy or control strategy)Sorry for being such a moron:)
and thank you so much for the detailed answer.
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