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Audit Planning Is The First Step In Research Paper

Audit planning is the first step in establishing the basis of the nature, timing, and extent of the overall audit strategy to determine the validity of the financial statements. An efficient and effective audit plan provides for a thoroughly and properly planned audit (The Importance of Audit Planning). It helps to reduce audit risk to a low level. Audit planning ensures appropriate attention to critical areas and that potential problems are identified on a timely basis. Determine Acceptance of Engagement

Request permission from Keystone Computers & Networks, Inc. (KCN) for authorization to inquire with Adams, Barnes, & Co. And for consent to reviews Adams, Barnes, & Co. working papers for current year and prior year audits (AU Section 315).

Inquire for specific and reasonable information.

Information that might bear the integrity of management.

Disagreements with management concerning principles, procedures, and significant matters.

Communications to audit committees or others with equivalent authority and responsibility regarding fraud, illegal acts of client, internal control related matters, and Adams, Barnes, & Co.'s understanding as to the reasons for the change in auditors. May want to inquiry for other reasonable information.

4. If Adams, Barnes, & Co. clearly states that response is limited, it should be noted for acceptance consideration because it can be limited due to impending, threatened, or potential litigation, disciplinary proceedings, or other unusual circumstances.

C. Review of Working Papers

1. Reach an understanding with Adams, Barnes, & Co. As to the uses of the working papers.

2. Review documentation of planning, internal control, audit results, and other matters of continuance of accounting principles and audit significance, such as analysis of balance sheet accounts and others relating to contingencies to obtain sufficient, appropriate, evidential matter to afford a reasonable basis of expressing opinion of the financial statements, including evaluating for consistency in the application of accounting principles and analysis for opening balances. These matters are of professional judgment and can include the most recent audited financial statements for current and prior years, Adams, Barnes, & Co.'s audit report, results of Adams, Barnes, & Co.'s inquiry, and our review of Adam's, Barnes, & Co.'s working papers and audit procedures on current transactions.

D. Decision...

Our opinion should not show reference to Adams, Barnes, & Co.'s reports or work.
Internal Control Procedures

A. Employee Segregation of Duties

1. Duties need to be assigned based on individual position, such as Accounts Payable to the Accounts Payable Clerk and Accounts Receivable and Sales to the Accounts Receivable Clerk.

2. Management Reconciliation of Accounts

a. Reconciliations need to be done.

b. Reconciliations need to be done on an appropriate periodic basis.

3. Technological Access

a. There needs to be limited access to the technological system based on individual job duties to prevent unauthorized use of the system.

b. The system needs red flags built in to detect inappropriately recorded transactions.

4. Management Control Policies

a. There needs to be policies that state needed approval for transactions over a specific amount.

b. Nonstandard items need a policy to be reported to appropriate management, for example, nonstandard shipping terms or contracts should be reported to the accounts receivable manager.

5. Recent Changes (Auditing Standard No 9, 2010)

a. Check for any recent changes in operations that could affect internal control.

b. Check for any recent changes in management that could affect internal control.

c. Check for any recent changes in the internal control functions.

d. Check for any recent changes in financial reporting.

6. Prior Internal Control Deficiencies

a. Check for any prior internal control deficiencies and what they were.

b. Check to see if prior deficiencies were appropriately and adequately corrected.

c. Check for any public information relevant to the evaluation of the likelihood of material misstatements in the financial statements.

Substantiative Tests

A. Balance Sheet

1. Trade Receivables

a. Trace debit side of allowance for doubtful accounts to bad debts expense.

b. Look for entries from unusual sources and rounded amounts with focus on those near an accounting cut off period.

c. Trace amounts from trade receivable ledger to original checks received and sales invoices to clarify accuracy of amounts, prenumbering of invoices, and customer information.

d. Trace debit side of cash receipts journal to cash and accounts…

Sources used in this document:
Bibliography

Auditing Standard No 9. (2010, Dec 23). Retrieved from PCAOB: http://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_9.aspx

AU Section 315. (n.d.). Retrieved from PCAOB: http://pcaobus.org/Standards/Auditing/Pages/AU315.aspx

The Importance of Audit Planning. (n.d.). Retrieved from warmah.com: http://warmah.com/Articles/importance_of_audit_planning_part_one.html
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