auditing 审计.doc

Question 1ISA 300 Planning an Audit of Financial Statements states “The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit”.Required:Describe the factors that will be relevant to the external auditor of a listed company in setting the scope, timing and direction of a statutory audit.Suggest answer:1. What is a plan?Written account of intended future course of action aimed at achieving specific goal(s) or objective(s) within a specific timeframe. It explains in detail what needs to be done, when, how, and by whom, and often includes best case, expected case, and worst case scenarios. This is called planning.2. Audit strategyAuditees plan for answering the questions expected to be raised during an audit.3. Audit strategyScope:l Legislative backgroundl Regulatory backgroundl Financial reporting frameworkl Special reporting factorsl Sizel RiskTiming:l Deadlines: statutory/imposed by companyl Balance of work: interim/year end/finall Availability of external/internal expertsl Production of time budgetDirection:l Audit or business risk approach l Risk assessmentl Materialityl Analytical procedures l Control v substantive approachl Recent changesl LogisticsComponents of an internal control system:5 components (ISA 315): Control environment * Risk assessment process Information system relevant to financial reporting Control activities* Monitoring of controlsProcedure:l Time recording system. Purpose: so all employees paid only for hours workedl Authorization of hours. Purpose: supervisor confirms hours worked.l Hours entered to payroll independently. Purpose: segregation of dutiesl Periodic check of hours entered to payrolll Authorized list of rates of pay independent of payroll departmentl Periodic check to payroll master files of rates of payl Fictitious employee checks ( from payroll to existence)l Employees removed from payroll system.(if the employees leave the company, need to remove their name from payroll system)l Knowledge of the company Identify transactions/events of specific interest in current yearl Review last years filesl Changes affecting the company Predict impact on FSensure changes reflected in FSl Enquiries l Analytical procedures Identify unexplained movementl Comparisons with financial and Non-financial informationl Assessment of control riskrisk controlslikelihood of errorsincreased riskl Assess detection risk for FS assertionshelps determine scope of auditreduce audit riskl Legal requirementsrange of auditl Locations, divisionscomplete record of all activitiesstaffingl Set overall materiality levelquantify material misstatementl Set performance materiality for specific assertionsdevote appropriate time/attentionl Supervision reviewplan staffingtime budgetallocation of resourcesThe external auditors workUnderstanding the systemControls in accounting systems Work of the auditorAuditing procedures:Five assertions:1. Occurrence:Define: transactions and events that have been recorded have occurred and pertain to the entity.Explain: sales and purchases shown in the income statement belong to the company and are real, that is they actually took place.2. Completeness:Define: all transactions and events that should have been recorded have been recorded.Explain: all the individual transactions making up the balances in the income statement are recorded; no sales or purchases are missing.3. AccuracyDefine: Amounts and other data relating to recorded transactions and events have been recorded appropriately.Explain: the values and any written information in the income statement are recorded at their correct amounts; no recording errors have occurred.4. Cut-offDefine: Transactions and events have been recorded in the correct accounting period.Explain: the income statement for say the year ended 31 December 2009 only contains sales and purchases for 2009, noting relates to 2008 or 2010.5. Classification Define: transaction and events have been recorded in the proper accounts.Explain: all individual transactions are shown under the correct heading; for example, the amount stated for interest only includes interest paid and interest is not included under any other heading such as light and heat.Transaction1. Sales1) Occurrence: all sales must relate to the company making the sale. The sale does not belong to the company. Working back from the recording of the sale, find the original sales order which authorized the transaction.2) Completeness: all sales must be recorded. Some sales are not recorded. Trace individual sales all the way through an accounting system; that is sales order through to sales total in the financial statements.3) Accuracy: all sales must be recorded at the correct amount in the sales day book and the correct receivables ledger/nominal ledger accounts. Errors are made in recording some sales. Trace sales transactions through the system confirming the correct amount has been recorded from the order to the receivables ledger and nominal ledger.4) Cut-off: sales must be recorded in the same accounting period as goods are dispatched to the customer. Sales are recorded in the wrong accounting period. Ensure that the sale is recorded in the same accounting period as goods being despatched( so sales are removed from inventory and included in the Sales Day Book( SDB) in the same month).5) Classification: Sales must be correctly recorded under “sales” in the financial statements. Sales are recorded under another accounts heading such as purchases. Trace individual sales to the sales account in the financial statements.6)2. Purchases1) Occurrence: all purchases must be necessary for that particular company and actually ordered by the company. The purchase is not a bona fide company expense. Working back from the recording of the purchase, find the original purchase order which authorized the transaction-ensuring that the purchase is valid for that company.2) Completeness: all purchases must be recorded. Some purchases are not recorded. Trace individual purchases all the way through an accounting system (recording of order through to financial statements) OR review supplier statements for purchases not recorded (see payables testing in the next chapter for an explanation of this procedure).3) Accuracy: all purchases must be recorded at the correct amount in the purchase day book, and correct payables ledger/nominal ledger accounts. Errors are made in recording some purchases. Trace individual purchases through the system confirming accuracy of recording (order to PDB and the payables and nominal ledgers.)4) Cut-off: purchase must be recorded in the same accounting period as goods are received from the supplier. Purchases are recorded in the wrong accounting period. Trace invoices in the PDB just before and after the year end to Goods Receipt Notes ensuring goods received in the same year as invoice recorded in the PDB. Where goods received pre-year end and invoice recorded post-year end, ensure purchase accrual is setup.5) Classification: purchases must be correctly recorded under “purchases” or correct expense account such as light and heat in the financial statements. Purchases are recorded under another accounts heading such as sales. Trace individual purchases to the expense accounts in financial statements. 3. Payroll1) Occurrence: payrolls are paid for work actually carried out by company employees and hours paid were actually worked. The payroll does not belong to the company (that is a person is paid who is not an employee) or the work was not carried out. Agree list of payroll to list of valid employees in the Human Resources department/ agree hours worked per payroll back to timesheets.2) Completeness: all payrolls are recorded. Some payrolls are not recorded. Trace individual payrolls all the way through an accounting system from recording of time worked to payrolls expenses accounts in the financial statements.3) Accuracy: all payrolls are recorded at the correct amount and in the correct nominal ledger accounts. Errors are made in recording some payrolls. Trace individual payrolls through the system confirming accuracy of recording.4) Cut-off: payrolls are recorded in the same accounting period that the work was carried out. Payrolls are recorded in the wrong accounting period. Ensure that the payroll is recording in the same accounting period as the work carried out by the employee.5) Classification: payrolls must be correctly recorded as a payrolls expense in the financial statements. Payrolls are recorded under another accounts heading such as purchases. Trace individual payrolls to payrolls account in the financial statements.Payroll: tests of completenessSample from personnel/HR to payrollBasic pay from independent records to payrollAuthorisation & calculation overtime, commission, bonusesClassification to NL codesRecording to job detailsDeductions correctly appliedNet pay correctly calculatedArithmetic checks of payrollNet pay correctly calculated & madePayroll: tests of occurrenceTests for fictitious & duplicate employeesCorrect treatment of starters/leaversTests of hours workedCorrect rates of pay appliedCasting of payrollSample from NL records back to individual gross pay details, orSample from net pay back to individual gross pay detailsPayroll: cut offCorrect application of wages/salary periods to company year endAccruals appropriately recordedPAYE/NIC and other year end liabilities to third partiesAccruals for overtime/commission/bonuses Share-based payroll expenses & liabilitiesDisclosuresStatutory/accounting standards checklistsClose attention to directors disclosuresConsistency with other information issued with financial statementsDirectors bonusesShare-based paymentsUnmodified audit reports: elements Title independent auditors report Addressee usually the shareholders Introductory Paragraph identifying the information audited Managements Responsibility preparation of financial statements Auditors Responsibility explanation of duties, & what can be expected of opinion Auditors Opinion reflecting statutory obligations Other Reporting Responsibilities dependent on jurisdiction Signature of senior statutory auditor (UK) or firm Date as near to approval of financial statements as possible Address of auditors office. To what extent does an unmodified audit report address the issue of the expectations gap? Audit reports have varied in length over time from short-form (introductory paragraph & opinion) to long-form (as currently). The long-form report evolved as a response to concerns over the expectation gap by communicating more information about the nature of an audit regulators hoped to reduce the expectations gap. Success seems to have been limited academic research indicates that the existence of the opinion & the reputation of the auditor, rather than the wording of the report, is of concern to users. Regulators continue to consider the appropriate wording. Unmodified, but with “emphasis of matter” or “other matter” paragraph The “emphasis of matter” or “other matter” paragraph will be shown after the opinion paragraph Required for: A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that it is fundamental to users understanding of the financial statements; or Any other matter that is relevant to users understanding of the audit, the auditors responsibilities or the auditors report. Describes the matter to be brought to the attention of addressee and the possible effect on financial statements, quantified where possibleModified audit reports:MaterialMaterial andPervasiveInability to obtain sufficient appropriate evidence“Except for” qualificationDisclaimer of opinionFinancial Statements are materially misstated“Except for” qualificationAdverse o