Planning the Audit

The first standard of field work states that "the work is to be adequately planned and assistants, if any, are to be properly supervised". Essential planning information an auditor should consider:

Matters relating to the entity's business and the industry in which it operates.

The entity's accounting policies and procedures.

Anticipated reliance on the internal control structure.

Preliminary judgments about materiality levels for audit purposes.

Financial statement items likely to require adjustment.

Conditions that may require extension or modification of audit tests, such as the possibility of material error or irregularities.

The nature of reports expected to be rendered.

In order to obtain the necessary information and gather sufficient evidence in sup­port of the financial statement assertions, the auditor should obtain a level of knowl­edge that will make possible adequate planning and performance of the audit. To ac­complish this, the auditor will review records relating to the entity and conduct dis­cussions with entity personnel. In this case, you may assume that the information provided was obtained from inquiry and conversation with client personnel, review of company records, and so on. You obviously cannot carry out all of the planning pro­cedures that might be applicable to many audits, for example, coordinating the assis­tance of entity personnel in data preparation. However, you should find enough in­formation to simulate a preliminary planning process.

Any professional who performs services for others assumes a risk that advice, opinions, or conclusions given to his or her clients may prove to be erroneous, inaccurate, or incomplete. In this respect, auditing services are no different. In every audit engagement there is a risk that the auditor may unknowingly fail to modify appropri­ately the opinion on financial statements that are materially misstated.

Misunderstanding can exist between client and auditor as to the precise nature of the engagement. To confirm the nature of responsibility the auditor is assuming, an engagement letter should be sent to the client for each job. These letters, normally addressed to the chairperson of the board of directors or audit committee, usually in­clude a confirmation of the audit for the current year, a statement of responsibility to detect errors and irregularities, fee and billing arrangements, and other matters, if ap­plicable.

Vocabulary

to supervise - наблюдать, контролировать

an internal control - внутренний контроль

an assertion - утверждение, отстаивание

an inquiry - вред, ущерб

erroneous - ошибочный

an engagement - обязательство, контракт

a confirmation - подтверждение, утверждение

a billing - счёт-фактура

an entity - организация, предприятие

1. Continue the sentences:

1. In order to gather sufficient evidence in support of the financial statement as­sertions, the auditor should...

2. You may assume that the information provided was obtained from...

3. The nature of reports expected...

4. In every audit engagement there is a risk that.

5. To confirm the nature of responsibility the auditor...

2. Put the necessary words in each of these sentences:

1. Misunderstanding can exist between client and... as to the precise nature of the engagement.

2. The auditor will review records relating to the....

3. You obviously cannot... all of the planning procedures that might be applica­ble to many audits.

3. Connect these words in word combinations:

billing assertion

internal letter

planning control

financial arrangement

engagement information

4. Translate from English into Russian:

1.The chairperson of the board of directors.

2.Preliminary judgments about materiality levels.

3.Anticipated reliance on the internal control structure.

4.A confirmation of the audit for the current year.

5. Complete the following table:

6. Answer the questions:

1. Is there a risk in every audit engagement?

2. What does an engagement letter usually include?

3. What should you do to simulate a preliminary planning process?

7. Look at the text again and find:

1. A phrase which means "check"

2. A phrase which means "affirmation"

3. A phrase which means "information"