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