Audit Planning

The engagement partner is responsible for the…

engagement and its performance

Who can the engagement partner seek assistance from during planning?

appropriate engagement team members (can include team members outside of engagements partners firm

Who holds the primary responsibility for planning the audit and its performance?

Engagement Partner

How does the engagement partner's responsibility change if they seek assistance from other engagement team members during planning?

The engagement partner retains primary responsibility for the engagement.

Audit planning involves establishing?

• overall audit strategy for the engagement

• developing an audit plan

why is planning not considered a discrete phase of an audit?

It is a continual and iterative process.

At what point in time might the audit planning process begin?

• Shortly after

or

• In connection with the completion of the previous audit

How long does the audit planning process typically continue?

Until the completion of the current audit.

What specific procedures must be included in the audit plan regarding risk?

• Planned risk assessment procedures

• Planned responses to the risks of material misstatement

The auditor should perform the following activities at the beginning of the audit:

• Perform procedures regarding the continuance of the client relationship and the specific audit engagement

• Determine compliance with independence^3A and ethics requirements

• Establish an understanding of the terms of the audit engagement with the audit committee

The determination of compliance with independence and ethics requirements is not limited to…

preliminary engagement activities and should be reevaluated with changes in circumstances.

Other Auditors

Separate firms whose work the lead auditor actively supervises and takes responsibility for

Referred-to Auditors

Separate public accounting firms that audit specific business units (like a foreign subsidiary) and issue their own separate audit reports. Instead of supervising them, the lead auditor divides responsibility with them, and explicitly refers to their separate reports in the final audit report

In an audit involving other auditors, who is responsible for determining if the firm's participation is sufficient to act as the lead auditor?

The engagement partner

When a company’s audit involves other accounting firms or referred-to auditors, what key elements must the engagement partner justify that their firm is the one signing the overall audit report

• Location & Business Unit Importance

• Relative Risk of Material Misstatement

• Extent of Supervision

Location & Business Unit Importance

The partner must assess how significant the locations or business units directly audited by their firm are to the company as a whole

Location & Business Unit, Quantitative Factor

The percentage of total assets, revenues, or net income audited directly by the firm

Location & Business Unit, Qualitative Factor

The locations audited by the firm hold unique strategic importance, complex transactions, or specialized operations

Relative Risk of Material Misstatement

The partner must compare the risk levels of the financial statement portions audited by their own firm versus those audited by the other or referred-to auditors

Extent of Supervision

The partner must evaluate how much direct control and oversight their firm will have over the other auditors' work

In an audit that involves referred-to auditors, the participation of the engagement partner’s firm ordinarily…

is not sufficient for it to serve as lead auditor if the referred-to auditors, in aggregate, audit more than 50 percent of the company’s assets or revenues.

Only the lead auditor of the financial statements can be the lead auditor of…

Internal control over financial reporting

What must a lead auditor obtain from other auditors regarding their internal compliance with SEC and PCAOB independence requirements?

A written affirmation regarding the other auditor's policies and procedures for maintaining compliance.

What action should a lead auditor take if information is discovered that contradicts an other auditor's independence affirmation?

Investigate the circumstances and consider the reliability of the affirmation.

Under what condition may a lead auditor use the work of an other auditor who plays a substantial role in the audit report?

The other auditor must be registered with the PCAOB.

In an audit that involves other auditors, the lead auditor should, with respect to each other auditor:

• Understand Capabilities: Assess their team's industry experience and knowledge of the financial reporting framework, PCAOB standards, and SEC rules.

• Obtain Written Affirmation: Get a written statement from the other auditor confirming their team has the knowledge, skill, and ability to perform their assigned tasks.

• Ensure Access & Communication: Confirm that the lead auditor is able to communicate with the other auditor and access their audit documentation.

The nature and extent of planning activities that are necessary depend on the…

• size and complexity of the company

• auditor's previous experience with the company

• changes in circumstances that occur during the audit.

Identify a factor that indicates a company has less complex operations.

• Fewer business lines

• Less complex business processes.

What is the function of the overall audit strategy?

To set the scope, timing, and direction of the audit and guide the audit plan.

What three elements must the auditor include and document in the audit plan?

• Risk assessment procedures

• Tests of controls

• Substantive procedures

• other planned audit procedures.

In multi-location engagements, how should the auditor correlate audit attention with specific business units?

Amount of audit attention should correlate with the degree of risk of material misstatement at the location.

Name a factor relevant to assessing the risk of material misstatement at a specific business unit in a multi-location audit.

The nature and amount of assets, liabilities, and transactions executed at the location.

What should the auditor do to the audit strategy if the assessment of the risks of material misstatement is revised during the audit?

Modify the overall audit strategy and the audit plan as necessary.

If a specialist is engaged by the auditor, what level of knowledge must the auditor possess regarding the specialist's subject matter?

Sufficient knowledge to communicate objectives and evaluate if the specialist's procedures meet the auditor's objectives.

What is a required activity for an auditor before starting an initial audit engagement regarding the previous auditor?

• Communicate with the predecessor auditor

• Perform procedures regarding the acceptance of the client relationship and the specific audit engagement

In an initial audit, what specific objective must the auditor's planning address regarding the start of the period?

Obtaining sufficient appropriate audit evidence regarding the opening balances.

When establishing the overall audit strategy, what factor should the auditor consider regarding the engagement team's resources?

• Nature

• Timing

• Extent

of resources necessary to perform the engagement.

How should an auditor address control deficiencies previously communicated to management during the planning phase?

Evaluate whether these deficiencies are important to the financial statements and how they affect audit procedures.

What should the lead auditor do regarding the supervision of other auditors at specific locations?

Involvement should be commensurate with the risks of material misstatement associated with those locations.

In an initial audit, how do the purpose and objective of planning compare to a recurring audit?

They are the same for both initial and recurring audit engagements.

What are the steps to the audit process?

Step 1: Perform Preliminary Engagement Activities

Step 2: Information Gathering Evaluation

Step 3: Establish the Overall Audit Strategy

Step 4: Develop and Document the Detailed Audit Plan

Step 5: Plan for Specialized Auditing Needs (If Applicable)

Step 6: Continually Monitor and Adjust the Plan

Preliminary Activities

Decide whether to accept or continue the client, verify team independence, establish formal audit terms, and confirm your firm's eligibility to serve as lead auditor.

Information Gathering Evaluation

Assess the company's operating complexity, internal controls, industry rules, and initial materiality.

Establish strategy

Set the broad scope, timing, direction, and resource needs (such as specialized IT or valuation experts) for the audit.

Develop and Document the Detailed Audit Plan

Document the exact nature, timing, and extent of risk assessment procedures, testing responses, and other required audit steps.

Plan for Specialized Auditing Needs (If Applicable)

Select which locations to test based on risk, and establish proper coordination and vetting for other participating firms.

Continually Monitor and Adjust the Plan

Modify the strategy and plan dynamically if new risks are found or if initial risk assessments prove incorrect during testing