Chapter 7 Audit Plan and Audit strategy, 100% verified.

Chapter 7 Audit Plan and Audit strategy, 100% verified. It helps to ensure that the audit process may be conducted in a targeted, effective, and timely manner. The scope depends on the company. It is important for the auditor to acquire know-how about the business and environment of the company. It may be useful to discuss parts of the audit strategy with management or BoD to increase effectiveness and efficiency of the audit. Why is there a need for an audit plan? Aspects that must be considered: Knowledge of the business and environment of the organization Understanding of the organization's accounting and its internal control system risk and probability type, time and scope of procedures coordination, guidance, supervision, and control further related aspects (e.g. going concern criterion) Which aspects must be considered regarding the development of the audit strategy? The audit program need to comprise the type, time and scope of audit procedures required by the audit strategy The audit program serves as a guidance for involved employees and as a means of control and documentation of adequate auditing In the audit program the auditor also thinks of the inherent risk, control risk, and the degree of persuasiveness of evidence. Also it is determined when which tests of controls and substantive tests of transactions are performed, the availability of employees involved in the audit, and the involvement of experts or other audits What does the audit program contain? The objective is to plan the audit properly so that the audit is conducted effectively. The nature and extent of planning activities depend on the size and complexity of the company, auditor's previous experience with the firm​, and changes in circumstances that occur. An overall audit strategy should be established that sets scope, timing, and direction of the audit and serves as a guideline. What are the regulatory requirements for the audit program according to PCAOB Auditing Standard No 9? The auditor should: update and evaluate results from previous years interview personnel/management review of guidelines, manuals review of client's documentation observations What should an auditor do to obtain an understanding of internal control? Tests of controls are used to audit the appropriateness and effectiveness of the internal control system What are tests of controls? Tests of controls are influenced by: quality of information systems size of auditee experience from previous years knowledge of audit team efficiency/economic aspects agreement/contract with client agreement with stakeholders/certification/confirmation By what are tests of controls influenced? Substantive tests of transaction are used to test if there are monetary misstatements that directly affect the correctness of financial reporting. Substantive tests of transaction check whether the transaction-related audit objectives are correct. What are substantive tests of transaction? Analytical procedures in the testing phase are comparisons between recorded amounts to the auditor's expectations. What are the substantive tests of analytical procedures? The objectives of analytical procedures are: Better understanding of the client's business to detect possible misstatements reduce substantive testing evaluate going concern What are the objectives of analytical procedures in the testing phase? Tests of details of balances test the final balances of accounts in first place in the BS and in second place in the IS Scope strongly depends on the outcome of the previous four tests. As they use independent sources they are very reliable What are the tests of details of balances? Set materiality Assess acceptable audit risk and inherent risk Understand internal control and assess control risk Gather information to assess fraud risk What are the four steps in the planning phase? The scope of the audit plan depend on: size of the company complexity of the audit previous experience of the auditor with the company know-how about comapny's business and environment On what does the scope of the audit plan depend on? This section is about corporate social responsibility for financial reports. It states that signing officers are: a) responsible for establishing/maintaining internal controls b) have evaluated effectiveness of internal controls within 90 days prior to the report c) have presented in the report their conclusions about the effectiveness signing officers have to disclose to the auditors and audit committee all signification deficiencies and any fraud What is stated in the sarbanes-oxley act of 2002 section 202? This section is about management assessment of internal controls. The commission shall prescribe rules requiring annual reports to contain an internal control report that a) state the responsibility of the MGMT b) contains an assessment of the effectiveness of internal control attestation shall be made in accordance with standards for attestation engagements issued by the Board What is stated in the sarbanes-oxley act of 2002 section 404?