The Really small company audit system

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The Really small company audit system

• PBCS Lecture 5

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(No Transcript)
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The Really small company audit system Legal and
Ethical Considerations

• Objectives
• To confirm that an audit is required
• To ensure we are qualified to carry out audit
• To ensure relevant ethical matters are considered
• For new clients only. To consider whether it is
  appropriate for the firm to accept the engagement

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The Really small company audit system Legal and
Ethical Considerations

• Check list
• Before accepting appointment
• Refer to 1985 Companies Act
• Refer to Audit Regulations
• Enquiries of existing or predecessor auditor,
• Permission from client
• Permission from predecessor
• Complete Appointment as Auditors checklist

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The Really small company audit system Legal and
Ethical Considerations

• Before carrying out audit
• Reconsider eligibility for appointment
• Complete Planning Checklist
• Assign fit, proper, competent and independent
  staff
• At end of the audit
• Reconsidered eligibility
• Complete eligibility audit

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The Really small company audit system
Acceptance and Confirmations of Engagement

• Checklist
• Obtain copies of resolution appointing us as
  auditors
• Send engagement letter, to client for signing
• Ensure that copy of engagement letter is returned
• Complete Planning Checklist

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The Really small company audit system
Background Information and Knowledge of the
Business

• Checklist
• Complete/Update Accounting Systems Checklist
• Complete/Update appropriate section of Basic
  Controls Checklist
• Complete Planning Checklist
• For new clients Complete relevant sections of
  the Permanent Audit File
• For existing clients Review and update contents
  of Permanent Audit File

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The Really small company audit system Planning

• Checklist
• Complete Audit Requirements Checklist
• Ensure that we are able to act
• Prepare and update the Permanent Audit File
• Hold discussions with client to establish any
  changes in the business or other matters
• Carry out Inherent Risk Assessment
• Compute materiality

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The Really small company audit system Planning

• Complete Planning Checklist
• Review last years file, noting
• Last years financial statements and audit
• Points Forward to Next Year schedule
• Reports to directors and replies thereto
• Consider changes in legislation or accounting
  practice
• Compare last years budget with actual time spent
• Allocate staff and complete staffing schedules
• Perform initial analytical procedures

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The Really small company audit system Planning

• Complete sampling plan
• Construct/tailor audit programmes
• Brief staff and complete Staff Briefing Summary
  schedule

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The Really small company audit system Setting
and Using Materiality

• Tolerable Error
• Linkage between tolerable error and materiality
• Setting Materiality
• Using Materiality
• Recalculating Materiality
• Interpreting the results

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The Really small company audit system Setting
and Using Materiality

• Checklist
• Compute initial materiality
• Use materiality in designing and performing
  detailed audit work
• Record unadjusted errors discovered during audit
  work
• Compare the errors on the schedule of Potential
  Audit Adjustments

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The Really small company audit system Audit
Risk Assessment

• Defining audit risk
• Inherent risk
• Control risk
• Detection risk
• Assessing inherent risk
• Assessing detection risk
• Using risk

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The Really small company audit system Audit
Risk Assessment

• Checklist
• Answer question on the General Inherent Risk
  Assessment
• Based on answers, assess the General Inherent
  Risk Assessment as low, medium or high
• Use the risk assessment to determine a sampling
  plan
• At conclusion of audit review the Inherent Risk
  Assessment

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The Really small company audit system
Analytical Procedures

• Introduction to analytical procedures
• SAS 410 Analytical procedures
• Analytical review at the planning stage
• Analytical review as a substantive procedure
• Analytical procedures as part of the overall
  review of financial statements

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The Really small company audit system
Analytical Procedures

• Checklist
• Complete Audit Approach Checklist
• Complete preliminary Analytical Procedures
• Based on answers, complete Specific Risk
  Assessment
• Consider whether the sample sizes can be reduced
  because of the results of our analytical
  procedures
• Design appropriate analytical procedures for each
  section of the audit file

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The Really small company audit system
Analytical Procedures

• Perform the relevant calculations
• Conclude on the results of the tests
• Update the Analytical Procedures schedule

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The Really small company audit system Detailed
Audit Work

• Detailed Audit Work
• Designing audit programmes
• Directional testing
• Sampling
• Pre-detection risk
• Recording of audit work
• Dealing with errors
• Tailor made programmes

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The Really small company audit system Detailed
Audit Work

• Checklist
• Complete Audit Approach Checklist and determine
  whether the standard audit programmes should be
  used
• Either Review the Audit Programmes in each
  section of the Current Audit File
• Or Prepare audit programmes for each section
  of Current Audit File
• Complete Sampling Plan

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The Really small company audit system Detailed
Audit Work

• Allocate sample sizes to the tests
• Complete all audit programmes within the Current
  Audit File
• Prepare detailed working papers
• Note an errors on schedule of Points for
  Partners Attention
• Ensure that conclusions are reached in relation
  to all audit programmes

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The Really small company audit system Detailed
Audit Work

• Ensure that all audit programmes and supporting
  schedules are fully completed
• Obtain a management representation letter from
  the directors of the company

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The Really small company audit system Review

• Check list
• Examine and clear Points for partners attention
• Complete Audit Review and Close Down schedule,
  complete Final Review of the Financial
  Statements
• Ensure that the form of audit report used is
  appropriate and that the contents of the audit
  report conform to SAS 600

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The Really small company audit system Review

• Ensure review is evidenced
• Ensure partner conclusion on Audit Review and
  Close Down

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The Really small company audit system Closing
Down the Audit

• Checklist
• Carry out a brief post mortem listing any
  faults
• Complete Points for Next Year in Current Audit
  File
• Send Report to Directors if necessary
• Diary any points which might occur before we plan
  next years audit

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The Really small company audit system Closing
Down the Audit

• Report to Directors
• A report to directors should be sent out after
  each audit if the circumstances warrant it. It
  should be sent sufficiently promptly for the
  directors to be able to take action

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The Really small company audit system Closing
Down the Audit

• Benefits
• Brings weaknesses to clients attention
• Assist in improving efficiency
• Highlights reason for additional cost or time
• Inform client as to why the audit report has been
  qualified, if it has been
• Provides a record of unadjusted misstatements
  requiring correction
• Draws attention to accounting policies the may
  require reconsideration