Essay about Grand Hotel

Submitted By m2m110
Words: 3066
Pages: 13

Today’s lecture will cover audit planning, understanding the entity and evaluating business risks. Refer to learning objectives in Chapter 6.
We will today cover the following: * Audit planning * Major steps in the audit process * Acceptance and continuance of audit clients including evaluation of potential clients * Communications with a previous auditor * Engagement letters and preliminary conferences/meetings with the client * Obtaining and understanding of the entity’s organizational structure, its operations and its industry * Assessing client business risk * Using analytical procedures for identifying and investigating unusual changes in account balances or transaction totals for planning purposes

Quality control procedures and client evaluation procedures
Steps in accepting an audit –APES 320 – refer sequence of steps worksheet
APES 320 (section 38) requires an audit firm, as part of its quality control, to establish policies and procedures for investigating potential clients and acceptance of an engagement and to periodically review continuance of clients. Policies and procedures for client acceptance and continuance are important because an audit firm needs to take precautions to avoid association with a client whose management lacks integrity. As discussed in previous lecture, care should be taken to avoid situations where the auditor-client relationship lacks independence. In addition, an auditor needs to consider the effect of client’s reputation on its image in the financial community, as well as increased risks of litigation.

Communicating with a previous auditor
When an auditor who s accepts a new client is replacing another auditor. APES 110 requires that before accepting a new client, the auditor must: * Request the prospective client’s permission to communicate with the previous auditor * If permission is refused, in the absence of exceptional circumstances, decline the nomination * On receipt of permission, ask the previous auditor in writing for all information necessary to enable a decision as to whether the nomination should be accepted.
Initial Engagements
ASA 510 (para6) requires that for initial engagements, the auditor should obtain sufficient appropriate audit evidence that: * Opening balances do not contain any material misstatements affecting the current period’s financial report; * The previous period’s closing balances have been correctly brought forward to the current period, or have been restated where appropriate; and * Appropriate accounting policies are consistently applied or changes have been properly accounted for and adequately disclosed
Where the working papers of the previous auditor are not available, the auditor applies other audit procedures in order to form an opinion about the opening balances, accounting policies and comparative figures. These include further consultation with management, review of records and working papers of the client and accounting and internal control activities that relate to the previous period, analysis of current period’s work to the extent that it relates to the opening balances, review of Board minutes and policy manuals.

Engagement Letters
After accepting an appointment, ASA 210 and APES 305 requires the auditor and the entity to agree on the terms of engagement. This agreement should be recorded in an engagement letter. This should help protect the audit firm and ensure that the client fully understands the auditor’s position. The form and content of the engagement letter vary for each client. It should generally include reference to the following matters set out in ASA 210.10:

* The objectives and scope of the financial report audit; * Responsibilities of the auditor; * Responsibilities of management; *