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AUDIT TRAINING
Audit Plan, Risk Assessments, Analytical Review and
Sourcing Information
9 April 2013
DISCLAIMER
This document contains information in summary form and is therefore intended
for general guidance only. It is not intended to be a substitute for detailed
research or the exercise of professional judgement. It does not purport to be
comprehensive or to render professional advice. The reader should not act on
the basis of any matter contained in this publication without first obtaining
specific professional advice.

We believe that the statements made by us in this document are accurate but no
warranty of accuracy or reliability is given. Our conclusions are based on
interpretations of accounting standards and other relevant professional
pronouncements and legislation current as at the date of this document. Should
the interpretations, accounting standards, other relevant professional
pronouncements or legislation change, our conclusions may not be valid. We are
under no obligation to update the matters considered in this document after its
publication.

© Hanrick Curran, March 2013
All rights reserved




                                                                                  Liability limited by a scheme approved under
                                                                                  professional Standards Legislation
ABOUT HANRICK CURRAN
Our  client base is mainly located in South
East Queensland, but also extends to
Northern New South Wales, Western
Queensland, Sydney, Melbourne, Darwin, To
wnsville and Mackay as well as other
regional areas.

We   have a strong position with clients in
Papua New Guinea and we also serve a
growing Asian business sector. While these
international connections may not be of
immediate interest but we believe they are
important in enabling us to effectively serve
our clients.




                                                Hanrick Curran’s Client Base
YOUR PRESENTERS
    – VIVEK CHOPRA CPA
    – MATTHEW GREEN CA




Contact   details: matthew.green@hanrickcurran.com.au
                  0447 724 595
                  (07) 3218 3900
                  Twitter: @matthewjgreenca
                  LinkedIn: http://au.linkedin.com/in/matthewjgreenca
                  www.hanrickcurran.com.au
AGENDA

   Audit plan
   Risk assessment
   Analytical review
   Sourcing Information
   Sample case studies
OBJECTIVE
   What is an Audit Strategy?
   Audit team members should be comfortable in interpreting and
    preparing an audit plan.
   What areas should be covered in an Audit Plan
   How to perform an analytical review and determining unusual
    fluctuations and relationships.
   Ability to perform risk assessment procedures in order to
    obtain an understanding of the entity and its
    environment, including its internal control.
   From where to source information which will help the team
    members in audit planning and benchmarking.
ASA 300 - PLANNING AN AUDIT OF A FINANCIAL REPORT

ASA 300.5 mandates that the engagement partner and other key
members of the engagement team shall be involved in planning the
audit, including planning and participating in the discussion among
engagement team members.


ASA 300.6 – Perform preliminary engagement activities such as client
continuance, compliance with ethical requirements (ASA 220) and
establishing the understanding of the terms of the engagement.


ASA 300.7 - The auditor shall develop an overall audit strategy that’s
sets the scope, timing and direction of the audit, and that guides the
development of the audit plan.


ASA 300.12 – An auditor shall include in the audit documentation an
overall audit strategy, the audit plan and any significant changes made
during the audit engagement to the overall audit strategy and audit
plan, and reasons for such changes.
AUDIT STRATEGY
ASA 300.8
In order to develop an audit strategy, the auditor shall:
   Define its scope       and    identify   the   characteristics    of   the
    engagement.
   Ascertain the reporting objectives of the engagement in order to
    plan the timing of the audit and nature of communication required
   Consider     significant   factors,    in    auditors   professional
    judgment, which are significant in directing the team’s efforts. This
    could also be identifying significant risk areas and then deploying
    resources or experienced team members to those high risk areas
    or the involvement of an expert.
   Define its approach to the key components of the audit.

Once the audit strategy has been established, an audit plan can be developed
to address the various matters identified in the overall audit strategy. The
establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or a sequential process, but they are closely linked since
changes in one may result in changes to the other.
AUDIT PLAN
ASA 300.A12
The audit plan is more detailed than the overall audit strategy in that it
includes the nature, timing and extent of audit procedures to be
performed by engagement team members.
An audit plan should contain the following:
 Background about the client

 Reporting requirements

 Any specific accounting policy

 Control environment of the client

 Fraud consideration

 Audit approach to be taken

 Materiality

 Sample selection basis

 Independence statement

 Risks identified during planning and audit procedures to be performed
   to mitigate those risks
 Further substantive procedures adopted for each financial statement
   areas
 Inherent risk assessment

 Timing of the audit and staffing

 Audit Budget
AUDIT PLAN OVERVIEW
The audit plan acts as an overview of the audit, indicating:


   The major objectives of the audit
   The constraints within which the audit needs to be performed
   Risk considerations
   Materiality
   An estimate of the resources required to carry out the audit


The nature and extent of the planning activity will vary with:
   The size and complexity of the entity
   The auditor’s previous experience with the entity
   Changes in the circumstances that occur during the engagement
RISK ASSESSMENT
ASA315.5 – the auditor shall perform risk assessment procedures to
provide a basis for the identification and assessment of risks of material
misstatements at the financial report and assertion level for classes of
transactions, account balances and disclosures.


Risk assessment procedures shall include:
   Enquiries of management and of others within the entity who may have
    information that is likely to assist in identifying the risks of material
    misstatement due to fraud or error
   Analytical procedures – WHY?
   Observation and inspection
RISK ASSESSMENT
In order to assess the risk the auditor shall:
 Discuss amongst the engagement team the susceptibility of the entity’s
   financial report to material misstatement.
 Obtain an understanding of the relevant industry, regulatory and other
   external factors.
 Understand the nature of the entity including its operations, its
   governance structure, the types of investments the entity is making or
   is planning to make and the way the entity is structured and how is it
   financed.
 Obtain an understanding of internal control relevant to the audit.

 Ascertain the selection and application of accounting policy of the entity
   and whether it is appropriate for its business and consistent with the
   applicable financial reporting framework.
 Find out the objectives and strategies of the entity and its various
   business risks.
 The auditor should find out if the entity has a risk assessment process.

 Assess the likelihood, impact and occurrence of the risks and what
   effect this risk will have on the financial report and assertion levels.

“Some risks may require special audit consideration.”
ANALYTICAL REVIEW
   Substantive procedure
   Helps to identify unusual relationships and fluctuations.
   Helps to identify deviations from predicted amounts.
   Inconsistencies with other relevant information.
   Should be performed at interim and final stages of the audit.


Analytical procedures include:
   Comparison with prior periods and anticipated results.
   Relationships between elements of financial information.
   Relationship between financial information and non            financial
    information. For example sales and volume of good sold.
   Comparison with industry data can highlight unusual trends.


Is making comparison to budgets                 an     accurate   way   of
performing analytical review?
ANALYTICAL REVIEW
Certain elements of financial accounting would be expected to conform
to predictable patters, for example:
   Gross margins and sales
   Sales commission and sales
   Accounts receivable and sales
   Internal expense to borrowings
   Some more please……


Why is it so important to perform analytical review at the final
stage of the audit?
ANALYTICAL REVIEW
Some ratios to keep in mind when performing analytical review are:
   Gross margin
   Net profit
   Asset turnover
   Return on total assets
   Current ratio
   Quick ratio
   Inventory turnover
   Debtors turnover
   Debt to equity


Analytical review should be a solid document which should add value to
an audit file. It should enable the reviewer to understand the reasons for
the fluctuations in financial and non financial information.


Refer to example.
SOURCING INFORMATION
Team members can source information from the following websites:
www.aasb.gov.au
www.auasb.gov.au


You can browse a list of Industry Profiles for different countries in
Business Source Complete. Also refer to Australian Chamber of
Commerce & Industry.


Industry overviews are a ready made source of information. One
example of a source of these are the IBIS World Industry Market
Research Reports.


ATO Benchmarks for various industries:
http://www.time4tax.com.au/ato_benchmarks_22.html
SAMPLE CASE STUDIES
Lets discuss……
Hanrick Curran
t. (07) 3218 3900
f. (07) 3218 3901             Thank you
Level 11
307 Queen Street
Brisbane Qld 4000

GPO Box 2268
Brisbane Qld 4001
                    www.hanrickcurran.com.au
                                     Topic  Date

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Hanrick Curran Audit Training - Risk Assessment - March 2013

  • 1. AUDIT TRAINING Audit Plan, Risk Assessments, Analytical Review and Sourcing Information 9 April 2013
  • 2. DISCLAIMER This document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. It does not purport to be comprehensive or to render professional advice. The reader should not act on the basis of any matter contained in this publication without first obtaining specific professional advice. We believe that the statements made by us in this document are accurate but no warranty of accuracy or reliability is given. Our conclusions are based on interpretations of accounting standards and other relevant professional pronouncements and legislation current as at the date of this document. Should the interpretations, accounting standards, other relevant professional pronouncements or legislation change, our conclusions may not be valid. We are under no obligation to update the matters considered in this document after its publication. © Hanrick Curran, March 2013 All rights reserved Liability limited by a scheme approved under professional Standards Legislation
  • 3. ABOUT HANRICK CURRAN Our client base is mainly located in South East Queensland, but also extends to Northern New South Wales, Western Queensland, Sydney, Melbourne, Darwin, To wnsville and Mackay as well as other regional areas. We have a strong position with clients in Papua New Guinea and we also serve a growing Asian business sector. While these international connections may not be of immediate interest but we believe they are important in enabling us to effectively serve our clients. Hanrick Curran’s Client Base
  • 4. YOUR PRESENTERS – VIVEK CHOPRA CPA – MATTHEW GREEN CA Contact details: matthew.green@hanrickcurran.com.au  0447 724 595  (07) 3218 3900  Twitter: @matthewjgreenca  LinkedIn: http://au.linkedin.com/in/matthewjgreenca  www.hanrickcurran.com.au
  • 5. AGENDA  Audit plan  Risk assessment  Analytical review  Sourcing Information  Sample case studies
  • 6. OBJECTIVE  What is an Audit Strategy?  Audit team members should be comfortable in interpreting and preparing an audit plan.  What areas should be covered in an Audit Plan  How to perform an analytical review and determining unusual fluctuations and relationships.  Ability to perform risk assessment procedures in order to obtain an understanding of the entity and its environment, including its internal control.  From where to source information which will help the team members in audit planning and benchmarking.
  • 7. ASA 300 - PLANNING AN AUDIT OF A FINANCIAL REPORT ASA 300.5 mandates that the engagement partner and other key members of the engagement team shall be involved in planning the audit, including planning and participating in the discussion among engagement team members. ASA 300.6 – Perform preliminary engagement activities such as client continuance, compliance with ethical requirements (ASA 220) and establishing the understanding of the terms of the engagement. ASA 300.7 - The auditor shall develop an overall audit strategy that’s sets the scope, timing and direction of the audit, and that guides the development of the audit plan. ASA 300.12 – An auditor shall include in the audit documentation an overall audit strategy, the audit plan and any significant changes made during the audit engagement to the overall audit strategy and audit plan, and reasons for such changes.
  • 8. AUDIT STRATEGY ASA 300.8 In order to develop an audit strategy, the auditor shall:  Define its scope and identify the characteristics of the engagement.  Ascertain the reporting objectives of the engagement in order to plan the timing of the audit and nature of communication required  Consider significant factors, in auditors professional judgment, which are significant in directing the team’s efforts. This could also be identifying significant risk areas and then deploying resources or experienced team members to those high risk areas or the involvement of an expert.  Define its approach to the key components of the audit. Once the audit strategy has been established, an audit plan can be developed to address the various matters identified in the overall audit strategy. The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or a sequential process, but they are closely linked since changes in one may result in changes to the other.
  • 9. AUDIT PLAN ASA 300.A12 The audit plan is more detailed than the overall audit strategy in that it includes the nature, timing and extent of audit procedures to be performed by engagement team members. An audit plan should contain the following:  Background about the client  Reporting requirements  Any specific accounting policy  Control environment of the client  Fraud consideration  Audit approach to be taken  Materiality  Sample selection basis  Independence statement  Risks identified during planning and audit procedures to be performed to mitigate those risks  Further substantive procedures adopted for each financial statement areas  Inherent risk assessment  Timing of the audit and staffing  Audit Budget
  • 10. AUDIT PLAN OVERVIEW The audit plan acts as an overview of the audit, indicating:  The major objectives of the audit  The constraints within which the audit needs to be performed  Risk considerations  Materiality  An estimate of the resources required to carry out the audit The nature and extent of the planning activity will vary with:  The size and complexity of the entity  The auditor’s previous experience with the entity  Changes in the circumstances that occur during the engagement
  • 11. RISK ASSESSMENT ASA315.5 – the auditor shall perform risk assessment procedures to provide a basis for the identification and assessment of risks of material misstatements at the financial report and assertion level for classes of transactions, account balances and disclosures. Risk assessment procedures shall include:  Enquiries of management and of others within the entity who may have information that is likely to assist in identifying the risks of material misstatement due to fraud or error  Analytical procedures – WHY?  Observation and inspection
  • 12. RISK ASSESSMENT In order to assess the risk the auditor shall:  Discuss amongst the engagement team the susceptibility of the entity’s financial report to material misstatement.  Obtain an understanding of the relevant industry, regulatory and other external factors.  Understand the nature of the entity including its operations, its governance structure, the types of investments the entity is making or is planning to make and the way the entity is structured and how is it financed.  Obtain an understanding of internal control relevant to the audit.  Ascertain the selection and application of accounting policy of the entity and whether it is appropriate for its business and consistent with the applicable financial reporting framework.  Find out the objectives and strategies of the entity and its various business risks.  The auditor should find out if the entity has a risk assessment process.  Assess the likelihood, impact and occurrence of the risks and what effect this risk will have on the financial report and assertion levels. “Some risks may require special audit consideration.”
  • 13. ANALYTICAL REVIEW  Substantive procedure  Helps to identify unusual relationships and fluctuations.  Helps to identify deviations from predicted amounts.  Inconsistencies with other relevant information.  Should be performed at interim and final stages of the audit. Analytical procedures include:  Comparison with prior periods and anticipated results.  Relationships between elements of financial information.  Relationship between financial information and non financial information. For example sales and volume of good sold.  Comparison with industry data can highlight unusual trends. Is making comparison to budgets an accurate way of performing analytical review?
  • 14. ANALYTICAL REVIEW Certain elements of financial accounting would be expected to conform to predictable patters, for example:  Gross margins and sales  Sales commission and sales  Accounts receivable and sales  Internal expense to borrowings  Some more please…… Why is it so important to perform analytical review at the final stage of the audit?
  • 15. ANALYTICAL REVIEW Some ratios to keep in mind when performing analytical review are:  Gross margin  Net profit  Asset turnover  Return on total assets  Current ratio  Quick ratio  Inventory turnover  Debtors turnover  Debt to equity Analytical review should be a solid document which should add value to an audit file. It should enable the reviewer to understand the reasons for the fluctuations in financial and non financial information. Refer to example.
  • 16. SOURCING INFORMATION Team members can source information from the following websites: www.aasb.gov.au www.auasb.gov.au You can browse a list of Industry Profiles for different countries in Business Source Complete. Also refer to Australian Chamber of Commerce & Industry. Industry overviews are a ready made source of information. One example of a source of these are the IBIS World Industry Market Research Reports. ATO Benchmarks for various industries: http://www.time4tax.com.au/ato_benchmarks_22.html
  • 17. SAMPLE CASE STUDIES Lets discuss……
  • 18. Hanrick Curran t. (07) 3218 3900 f. (07) 3218 3901 Thank you Level 11 307 Queen Street Brisbane Qld 4000 GPO Box 2268 Brisbane Qld 4001 www.hanrickcurran.com.au Topic Date