Chap 3: Planning the assignment

1/ Planning
Audit strategy
- Def + formulate general strategy for the audit
+ set scope, timming, direction for the audit
+ guide the development of audit plan

- Key contents
(1) Understanding entity's environment
+ general economic factors, industry conditions
+ important characteristics of clients:
/ business
/ rpt requirement, including changes since previous audit
/ principal business trans
/financial performance
+ general level of competence of management

(2) Understanding accounting, internal control sys

+ accountng policies and changes in policies
+ effect of new accounting/ auditing annoucement

(3) Risk and materiality

+ expected assessment of risks of frauds/ errors and identification of signif
+ set MM for audit planning
+ posibility of MM
+ identification of complex trans

(4) Consequent, nature, timing, extent of procedures => effect of technology inf on
(5) Coordination, direction, supervision, review => number of staff, location, a
(6) Other matters

Audit plan
- Def
+ more detailed than strategy
+ set out nature, timing, extent of audit procedures
+ show how overal audit strategy implemented

2/ Analytical procedures
 Def
Elements consitute
Source of information
Key ratios

3/ Material
Def
Material =>relate to level of misstatement that affect decision of users of the accounts
PM (performance material misstatement) < M
Tolerable misstatement => maximum degree that auditor accept in a class of trans/ balance in Fs

M => calculated at the beginning & should be reviewed

=> calculated based on judegment, experience
Materiality => quantity => based on PBT, asset, … + quality

Benefits materiality assessment => help auditor to decide:

- how many items to test
- wht to use sampling
- what level of misstatement is likely to lead to an auditor to say the FSs NOT give true, fair vie

Review materiality when

- draft FSs are altered due to MM => overal materiality changes
- external factors cause changes

4/ Audit risk
IR, CR, DR
Inherent risk => related to
+ balance of important acc
+ balance included/ estimated
+ FS => liable to misstatement causes:
-- comp in trouble
-- comp seeking to raise finance
-- other motivation for director to misstate figures (profit target/ profit related to bonu
-- FS contain balance with complex financial accounting requirment/ choice of treatm
=> auditor MUST use professional judgement and knowledge => assess IR
if no knowledge/ no available inf => IR high

Control risk => relate to internal control sys

Detection risk => auditor NOT detect a material misstatement in FSs

If IR, CR high => NOT rely on internal system

=> low material => low detection risk => more evidence is collected

Identify and assess risk (4 steps)

 Identify risks through obtainning understanding about entity and its environment
Assess the risk
Conside risk could result in material misstatemetn
Conside likelihood of material missta

Significant risk
risk of fraud
significant changes in economy, accounting and other development
complex trans unusual trans
significant trans with related parties
degree of subjectivity in financial inf
5/ Fraud and errors
Difference btw frauds and errors
Fraud Error
intentionally act unintentionally act
involved in deception to obtain illegal omission of an amount/ a disclosure
advantages

Type of fraud
- Fraudulent financial reporting: gian lận báo cáo tài chính
intentionally acts, omit amount/ disclosure in FSs to deceive FSs users
(cố tình bỏ / không phản ánh đúng BCTC để lừa gạt người sd BCTC)
- Misappropriation of assets: biển thủ tài sản

Responsibilities
Mana => detect, prevent frauds, errors
Auditor => obtain reasonable assurance that FSs free from material missta whether caused by fr
=> identify, assess risk of material misstatement due to fraud
=> obtain evidence regarding risks
=> respond to any actual/ suspected fraud identified during the audit

Note: Material misstat from fraud => greater risk => involve sophisticated / collusion btw indi/ mana fraud
 Why to understand
- to assesss, identify risk of MM to Fs
- enable auditors to design, perform further audit procedures
- provide a FW of reference for exercising audit judgement
nges since previous audit What to understand
- industry, regulatory, other external factors
- nature of entiry (selection, application of accounting policies)
- objectivities and strategies related to business risk that may
cause material misstatement in FSs
- measurement, rv of entity's financial performance
- internal control

rors and identification of significant audit areas

=> effect of technology inf on audit

=> number of staff, location, attent client's inv count
f users of the accounts

n a class of trans/ balance in Fs

he FSs NOT give true, fair view

fit target/ profit related to bonus)

ng requirment/ choice of treatment
ts environment

ceive FSs users

ười sd BCTC)

al missta whether caused by fraud/ errors

ring the audit

collusion btw indi/ mana fraud => manipulate

How
- inquiries mana, other within entity
- analytical procedures
- observation, inspection
- prior period knowledge
- discussion of susceptibility of FSs to MM among engagement team
Chap 6 Revenue system
Risk Control objectives Control activities
Order order not rc => not fulfill order rc correctly => fulfilled segregate duties: order, rc
=>> loss customer encourage customers to pay check ageing/ credit term of
provide guds/ services to promtly customer
customers who cant pay/ guds/ services only supplies check change in address, inf
cant pay for long time to customer with gud credit of cus
term
Invoices & gud despatch => not invoice
despatch invoices raise correctly => rc
gud despatch => not rc ONLY issue credit note for
=> loss to business valid reason
invoices raise wrongly by all despatch => rc
cancel from credit not
Test of control