Purpose of Planning and Supervision
- Ensures critical audit areas receive appropriate attention.
- Identifies and addresses potential issues promptly.
- Facilitates efficient completion of audit work.
- Optimizes use of assistants and coordination with other auditors or experts.
Delegation of Responsibilities
- The auditor with final audit responsibility may delegate planning and supervision tasks.
- "Auditor" refers to the lead auditor; "assistants" refers to other audit personnel.
Audit Planning: Obtaining Knowledge of Client’s Business
- Auditors must understand the client’s business to effectively plan and execute audits.
- Understanding involves knowledge of events, transactions, and practices impacting financial statements.
- This knowledge helps identify special audit areas, evaluate estimates and management representations, and assess appropriateness of accounting principles and disclosures.
Scope of Business Knowledge
- Business type, products and services, capital structure, related parties, locations, operations.
- Industry factors: economic conditions, government regulations, technological changes.
- Accounting practices and competitive conditions within the industry.
Methods of Acquiring Business Knowledge
- Experience with client or industry.
- Review of client’s reports, minutes, financial documents, previous audit files.
- Consultations with client management, internal personnel, and firm staff responsible for non-audit services.
- External sources like trade journals and economic considerations.
- Site visits to client premises or facilities.
Key Topics during Discussions with Client Management
- Management and organizational changes.
- Regulatory and business developments.
- Financial difficulties or accounting problems.
- Explanation of financial trends, variances, and key ratios.
Developing the Overall Audit Plan
- Strategy defines the scope, nature, and timing of audit procedures.
- Depends on entity size, complexity, auditor’s familiarity.
- Discussions with client management may be made but plan remains the auditor’s responsibility.
Considerations in Audit Planning
- Entity’s business and industry context.
- Accounting policies and internal data processing methods.
- Reliance on internal controls.
- Materiality judgments and possible financial statement adjustments.
- Conditions requiring changes to audit tests.
- Expected audit reports and involvement of other auditors.
Audit Planning Procedures
- Review prior correspondence, working papers, financial statements.
- Discuss matters affecting audit with firm and client personnel.
- Read interim financial statements.
- Coordinate expected assistance from client.
- Set timing and staffing.
- Use memoranda for complex audits.
Preparation of Written Audit Program
- Written audit program outlines audit procedures in detail.
- Guides assistants on their tasks.
- Should be based on prior planning considerations.
- Must allow flexibility to adjust as audit conditions change.
Reliance on Internal Controls
- Auditor may rely on internal controls to tailor audit procedures.
- Reliance depends on control effectiveness and efficiency considerations.
- Timing and coordination with client and experts must be factored.
Timing of Audit Procedures
- Generally flexible unless procedures involve time-specific events, e.g., inventory observation.
Supervision of Assistants
- Includes assignment coordination, capability assessments, and fieldwork review.
- Ensures objectives are met and proper training is delivered.
- Complexity of audit and qualifications affect supervision level.
Informing Assistants of Responsibilities
- Assistants must understand objectives and nature, extent, timing of procedures.
- They should report significant accounting and auditing issues to the auditor.
Review of Assistants’ Work
- Auditor must verify adequacy and consistency of assistants’ work with audit conclusions.
Handling Differences of Opinion Among Firm Personnel
- Procedures exist for documenting disagreements on accounting or auditing matters.
- Assistants may disassociate from resolutions if necessary following consultations.
- Final resolutions and their basis must be documented.
Effective Date and Approval
- Statement effective upon approval by the Board of Accountancy and Professional Regulation Commission.
- Approved December 15, 1989, by the Auditing Standards and Practices Council.