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1.05 Steps in the Audit Process

Terms in this set (11)

Accept an audit if 2 conditions are met:
1. Determine the acceptability of the AFRF being applied
2. Obtain management's agreement that it understands & accepts certain responsibilities
For an auditor to accept the engagement, management must accept responsibility for:
- Preparation & fair presentation of the F/S in accordance with the AFRF
- Design, implementation, & maintenance of I/C
- Provide the auditor with access to all relevant info requested by the auditor
Don't accept an engagement if:
- there is a client-imposed scope limitation that requires the issuance of a disclaimer of opinion
- management lacks integrity
For first year audits, obtain sufficient appropriate evidence regarding opening balances:
- read most recent F/S & predecessor's report for info regarding opening balances & consistency
- request management authorize predecessor to allow successor to review documentation & respond to inquiries
Make inquiries of predecessor auditor on several issues RID-C
Reasons for change
Integrity of management
Disagreements during audit
Communication with management or those charged with governance
Management
those with executive responsibility for the conduct of the entity's organization
Governance
those that are responsible for overseeing the strategic direction of the entity and the obligations related to accountability
Audit committee
the outside, independent board of director members responsible for financial reporting, regulatory compliance, internal control, and hiring and overseeing internal and external auditors. Must have 1 financial expert
Financial expert
- has an understanding of GAAP & F/S
- experience preparing/auditing comparable F/S
- experience with internal accounting controls
- an understanding of the functions of the audit committee
- does not need to be a CPA
Matters that should be communicated to those charged with governance DISAPPROVE
Disagreements with management
Noncompliance with laws & regulations, including Illegal acts
Significant accounting policies
Adjustments proposed by auditor
Prior discussions with management
Problems or significant difficulties
Responsibilities of the auditor under GAAS
Other information
Views of the accountant
Estimates
Steps in an audit:
1. Client acceptance & continuance
2. Plan the audit
- nature, timing, & extent of resources needed
- communicate responsibilities, timing & scope, inquiries of management
3. Obtain understanding of client, its environment, & I/C
4. Assess RMM & design further procedures
5. Perform tests of controls
6. Perform substantive procedures
7. Review
8. Form an opinion
9. Issue a report
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