MGAD10H3 Chapter Notes - Chapter 3: Business Process, Contingent Liability, Profit Margin

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Published on 9 Oct 2012
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Chapter 3 Audit Planning I
Learning objectives
1. Identify the different stages of an audit
2. Explain the process used in gaining an understanding of the client
3. Explain how related parties can impact risk
4. Define fraud risk and understand audit procedures to reduce the risk
5. Explain the going concern assumption
6. Describe corporate governance
7. Explain how a client’s information technology (IT) can affect risk
8. Explain how client closing procedures can affect reported results
CAS 240 the auditor’s responsibilities relating to fraud in an audit of financial statements
CAS 300 planning an audit of financial statements
CAS 315 identifying and assessing the risks of material misstatement through understanding
the entity and its environment
CAS 550 related parties
CAS 570 going concern
3.1 Stages of an audit
Planning stage gaining an understanding of the client, identifying risk factors,
developing an audit strategy, and assessing materiality
Materiality information that impacts the decision-making process of the users of the
financial statements
Audit strategy a strategy that sets the scope, timing, and direction of the audit and
provides the basis for developing a detailed audit plan
Execution (performing) stage detailed testing of controls and substantive testing of
transactions and accounts
Reporting stage evaluating the results of the detailed testing in light of the auditor’s
understanding of their client and forming an opinion on the fair presentation of the
client’s financial statements
3.1.1 Planning an audit
CAS 300 requires that an auditor plan their audit to reduce audit risk to an acceptably
low level
Audit risk is the risk that an auditor issues an unmodified or clean audit opinion when
the financial statements are in fact materially misstated
Efficiency refers to the amount of time spent gathering audit evidence. Effectiveness
refers to the minimization of audit risk
Preliminary risk identification understand the client, identify related parties, fraud
risk, going concern risk, corporate governance, understand internal controls, understand
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Document Summary

Cas 240 the auditor"s responsibilities relating to fraud in an audit of financial statements. Cas 300 planning an audit of financial statements. Cas 315 identifying and assessing the risks of material misstatement through understanding the entity and its environment. Planning stage gaining an understanding of the client, identifying risk factors, developing an audit strategy, and assessing materiality. Materiality information that impacts the decision-making process of the users of the financial statements. Audit strategy a strategy that sets the scope, timing, and direction of the audit and provides the basis for developing a detailed audit plan. Execution (performing) stage detailed testing of controls and substantive testing of transactions and accounts. Reporting stage evaluating the results of the detailed testing in light of the auditor"s understanding of their client and forming an opinion on the fair presentation of the client"s financial statements. Cas 300 requires that an auditor plan their audit to reduce audit risk to an acceptably low level.

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