TECHNICAL EXCELLENCE

AUDIT PLANNING

AUDIT
PLANNING
Highlights of Technical
nical Clinic

BY
MAGDALENE
GDALENE
ANG
G

A
ƒ—†‹–‡‡†•–‘„‡’”‘’‡”Ž›
’”‘’‡”Ž›
†‡–ƒ‹Ž‡†ƒ—†‹–
’Žƒ‡†„‡ˆ‘”‡–Š‡†‡–ƒ‹Ž‡†ƒ—†‹–
—ƒ–‡ƒ—†‹–
™‘”„‡‰‹•Ǥ†‡“—ƒ–‡ƒ—†‹–
–Šƒ–ƒ†‡“—ƒ–‡
’Žƒ‹‰Š‡Ž’•–‘‡•—”‡–Šƒ–ƒ†‡“—ƒ–‡
‘‹’‘”–ƒ–
”‡•‘—”…‡•ƒ”‡ƒŽŽ‘…ƒ–‡†–‘‹’‘”–ƒ–
–’‘–‡–‹ƒŽ
ƒ”‡ƒ•‘ˆ–Š‡ƒ—†‹–ƒ†–Šƒ–’‘–‡–‹ƒŽ
ƒ–‹‡Ž›
’”‘„Ž‡•ƒ”‡‹†‡–‹ϐ‹‡†‘ƒ–‹‡Ž›
‰ƒ”–‡”‘ˆ
„ƒ•‹•Ǥ‘ƒ‘™ǡƒƒ‰‹‰ƒ”–‡”‘ˆ
‹Ž‹–ƒ–‡†–Š‹•
‘™ƒ’Ƭ••‘…‹ƒ–‡•ǡˆƒ…‹Ž‹–ƒ–‡†–Š‹•
ˆ‘”ƒ‰”‘—’‘ˆ
–‘’‹…ƒ–ƒ–‡…Š‹…ƒŽ…Ž‹‹…ˆ‘”ƒ‰”‘—’‘ˆ
‹‰ŠŽ‹‰Š–•ƒ”‡
’”ƒ…–‹–‹‘‡”•ǤŠ‡ƒ‹Š‹‰ŠŽ‹‰Š–•ƒ”‡
’”‡•‡–‡†Š‡”‡Ǥ

Q1 WHAT ARE THE

PRELIMINARY
E

ENGAGEMENT ACTIVITIES
THAT THE AUDITOR
NEEDS TO UNDERTAKE
AT THE BEGINNING OF AN
ENGAGEMENT?
‹‰ƒ’‘”‡–ƒ†ƒ”†•‘—†‹–‹‰
ȋȌ͵ͲͲ’ƒ”ƒ͸”‡“—‹”‡•–Š‡ƒ—†‹–‘”
–‘’‡”ˆ‘”’”‡Ž‹‹ƒ”›‡‰ƒ‰‡‡–
ƒ…–‹˜‹–‹‡•”‡‰ƒ”†‹‰ȋ‹Ȍ‰ƒ‰‡‡–
ƒ……‡’–ƒ…‡ƒ†…‘–‹—ƒ…‡Ǣȋ‹‹Ȍ
˜ƒŽ—ƒ–‹‘‘ˆ…‘’Ž‹ƒ…‡™‹–Š‡–Š‹…ƒŽ
”‡“—‹”‡‡–•‹…Ž—†‹‰‹†‡’‡†‡…‡ǡ
ƒ†ȋ‹‹‹Ȍ•–ƒ„Ž‹•Š‹‰ƒ—†‡”•–ƒ†‹‰
‘ˆ–Š‡–‡”•‘ˆ–Š‡‡‰ƒ‰‡‡–Ǥ
Š‡ƒ—†‹–‘”‡‡†•–‘ƒ‡•—”‡
–Š‡•‡’”‡Ǧ’Žƒ‹‰’”‘…‡†—”‡•
PHOTO GETTY IMAGES

Šƒ˜‡„‡‡…ƒ””‹‡†‘—–ƒ†’”‘’‡”Ž›
…‘…Ž—†‡†„‡ˆ‘”‡‹…•–ƒ”–‹‰–Š‡ƒ—†‹–
’Žƒ‹‰’”‘…‡••Ǥ—…Š™‘”Šƒ•–‘„‡
’‡”ˆ‘”‡†”‡‰ƒ”†Ž‡••‘ˆ™Š‡–Š‡”–Š‡
‡‰ƒ‰‡‡–‹•‡™‘””‡…—””‹‰Ǥ‡–—•
‹ŽŽ—•–”ƒ–‡™‹–Š–™‘‡šƒ’Ž‡•Ǥ

48 IS Chartered Accountant
 EXAMPLE 1 NEW ENGAGEMENT
Š‡ϐ‹”Šƒ•„‡‡ƒ’’”‘ƒ…Š‡†–‘
—†‡”–ƒ‡ƒƒ—†‹–‘ˆƒ…‘’ƒ›–Šƒ–
‘’‡”ƒ–‡•‹ƒ•’‡…‹ƒŽ‹•‡†‹†—•–”›
ȋˆ‘”‡šƒ’Ž‡ǡ…‘•–”—…–‹‘ȌǤ”‹‘”
–‘ƒ……‡’–‹‰–Š‡‡‰ƒ‰‡‡–ǡ
‡‰ƒ‰‡‡–ƒ†–Š‡”‡ˆ‘”‡ƒˆˆ‡…––Š‡
ϐ‹”̵•†‡…‹•‹‘–‘…‘–‹—‡™‹–Š–Š‡
‡‰ƒ‰‡‡–‹…Ž—†‡ȋ–Š‡Ž‹•–‹•‘–
‡šŠƒ—•–‹˜‡Ȍǣ
 ‡”‰‡”‘ˆ–Š‡…Ž‹‡–™‹–Šƒ‘–Š‡”
‡–‹–›‘ˆ•‹‹Žƒ”•‹œ‡Ǣ
–Š‡ϐ‹”‡‡†•–‘‰‘–Š”‘—‰Š‹–•  ••—‡™‹–Šƒƒ‰‡‡–‹–‡‰”‹–›Ǣ
…Ž‹‡–ƒ……‡’–ƒ…‡’‘Ž‹…‹‡•ƒ†
’”‘…‡†—”‡•ǤŠ‡ƒ—†‹–‘”‡‡†•–‘
ƒ••‡••–Š‡‹–‡‰”‹–›‘ˆ–Š‡’‘–‡–‹ƒŽ
…Ž‹‡–Ǣ…‘•‹†‡”™Š‡–Š‡”Š‡Šƒ•–Š‡
…‘’‡–‡…‡
ƒ†‡š’‡”–‹•‡
s –‘–ƒ‡‘–Š‡
‡‰ƒ‰‡‡–ǡ
 ••—‡‘ˆ‡‡…‘ŽŽ‡…–‹‘Ǣ
 Šƒ‰‡‹‡›ƒƒ‰‡‡–
’‡”•‘‡Žǡƒ†
 ‹‰‹ϐ‹…ƒ–‹˜‡•–‡–‹‘–Š‡”
‹†—•–”‹‡•‘”•ƒ‡‹†—•–”›„—–‹
‘–Š‡”Œ—”‹•†‹…–‹‘•Ǥ
ˆ–Š‡ƒ—†‹–‘”ǡƒˆ–‡”’‡”ˆ‘”‹‰
–Š‡…‘–‹—ƒ…‡’”‘…‡†—”‡•ǡ†‡…‹†‡•
It is important that the
ƒ†™Š‡–Š‡” –‘…‘–‹—‡™‹–Š–Š‡ƒ—†‹–‘ˆ–Š‡
auditor understands –Š‡ϐ‹”‹•‹ …‘’ƒ›ǡŠ‡•Š‘—Ž†–Š‡…‘•‹†‡”
the intended use of …‘’Ž‹ƒ…‡™‹–Š ™Š‡–Š‡”–Š‡”‡‹•ƒ‡‡†ˆ‘”–Š‡ϐ‹”
each and every section ”‡Ž‡˜ƒ–‡–Š‹…ƒŽ –‘”‡Ǧ‹••—‡–Š‡‡‰ƒ‰‡‡–Ž‡––‡”ǤŠ‡
contained within the ”‡“—‹”‡‡–•Ǥ ƒ—†‹–‘”…ƒ”‡ˆ‡”–‘ʹͳͲ’ƒ”ƒʹͺ
firm's standard audit Š‡”‡ƒ”‡ ˆ‘”‘”‡‰—‹†ƒ…‡‘–Š‡ˆƒ…–‘”•–‘„‡
programme so that he ƒ—„‡”‘ˆ …‘•‹†‡”‡†‹”‡Ǧ‹••—‹‰ƒ‡‰ƒ‰‡‡–
…Š‡…Ž‹•–•‹••—‡† Ž‡––‡”Ǥ
can properly carry out
„›˜ƒ”‹‘—•
the procedures during
the planning process.
’”‘ˆ‡••‹‘ƒŽ
„‘†‹‡•–‘ƒ‹†
–Š‡ƒ—†‹–‘”•
Q2 WHAT ARE
THE COMMON
PROCEDURES THAT THE
‹•—…Šƒ AUDITOR CAN PERFORM AS
ƒ••‡••‡–Ǥ‡‘ˆ–Š‡‹•‡’Žƒ–‡ͳ PART OF THE PLANNING
‘ˆ–Š‡‹‰ƒ’‘”‡–ƒ†ƒ”†‘—ƒŽ‹–› PROCESS, PARTICULARLY
‘–”‘ŽȋȌͳ
—‹†‡ʹ‹••—‡†„› FOR SMALL AND MEDIUM-
–Š‡•–‹–—–‡‘ˆ‹‰ƒ’‘”‡Šƒ”–‡”‡† SIZED PRACTICES, TO
……‘—–ƒ–•ȋȌǤŠ‡”‡ƒˆ–‡”ǡ‹ˆ
–Š‡ƒ—†‹–‘”†‡…‹†‡•–‘ƒ……‡’––Š‡
‡‰ƒ‰‡‡–ǡ–Š‡ƒ—†‹–‘”‡‡†•–‘
…Ž‡ƒ”Ž›…‘—‹…ƒ–‡–Š‡–‡”•‘ˆ–Š‡
‡‰ƒ‰‡‡––‘–Š‡ƒƒ‰‡‡–‘”
–Š‘•‡…Šƒ”‰‡†™‹–Š‰‘˜‡”ƒ…‡‘ˆ–Š‡
…‘’ƒ›–‘„‡ƒ—†‹–‡†Ǥ
EXAMPLE 2
RECURRING ENGAGEMENT
Š‡ϐ‹”Šƒ•„‡‡–Š‡ƒ—†‹–‘”ˆ‘”–Š‡
…‘’ƒ›ˆ‘”ƒ››‡ƒ”•Ǥ˜‡•‘ǡ’”‹‘”
–‘–Š‡…‘‡…‡‡–‘ˆ–Š‡’Žƒ‹‰
’”‘…‡••ǡ–Š‡ƒ—†‹–‘”‹•”‡“—‹”‡†–‘
’‡”ˆ‘”™‘”–‘ƒ••‡••™Š‡–Š‡”–Š‡
ϐ‹”…ƒ…‘–‹—‡ƒ•–Š‡ƒ—†‹–‘”ˆ‘”–Š‡
…‘’ƒ›Ǥ’‡…‹ϐ‹…ƒŽŽ›ǡ–Š‡ϐ‹”•Š‘—Ž†
‘„–ƒ‹ƒ—’†ƒ–‡‘–Š‡•‹‰‹ϐ‹…ƒ–
…Šƒ‰‡•‹–Š‡…Ž‹‡–̵•„—•‹‡••‡•ƒ†
‘’‡”ƒ–‹‘•ƒ†”‡Ǧ‡˜ƒŽ—ƒ–‡–Š‡”‹•
‘ˆ–Š‡‡‰ƒ‰‡‡–Ǥ‹”…—•–ƒ…‡•
–Šƒ–ƒ›‹…”‡ƒ•‡–Š‡”‹•‘ˆ–Š‡
OBTAIN AN UNDERSTANDING
OF THE COMPANY TO BE
AUDITED?
Š‡…‘‘’”‘…‡†—”‡•–Šƒ––Š‡
ƒ—†‹–‘”…ƒ’‡”ˆ‘”ƒ”‡ƒ•ˆ‘ŽŽ‘™•
ȋ–Š‡Ž‹•–‹•‘–‡šŠƒ—•–‹˜‡Ȍǣ
i) ‡“—‡•–ˆ‘”ƒƒ‰‡‡–ƒ……‘—–•
ˆ”‘–Š‡…‘’ƒ›̵•†‹”‡…–‘”‘”
ϐ‹ƒ…‡’‡”•‘‡Ž–‘’‡”ˆ‘”ƒ
’”‡Ž‹‹ƒ”›ƒƒŽ›–‹…ƒŽ”‡˜‹‡™
ƒ‰ƒ‹•–’”‹‘”›‡ƒ”̵•ƒ—†‹–‡†ϐ‹‰—”‡•
ƒ•™‡ŽŽƒ•–Š‡‡š’‡…–ƒ–‹‘ˆ‘”‡†
ƒ––Š‡’Žƒ‹‰•–ƒ‰‡–‘‹†‡–‹ˆ›
ƒ›——•—ƒŽ‘”•‹‰‹ϐ‹…ƒ–˜ƒ”‹ƒ…‡
ƒ†•‡‡…Žƒ”‹ϐ‹…ƒ–‹‘ˆ”‘–Š‡
ƒƒ‰‡‡–Ǥ
ii) …Š‡†—Ž‡ƒ’”‡Ž‹‹ƒ”›†‹•…—••‹‘
™‹–Šƒƒ‰‡‡–‹˜‘Ž˜‹‰–Š‡
‡‰ƒ‰‡‡–’ƒ”–‡”ƒ†‘–Š‡”‡›
‡„‡”•‘ˆ–Š‡‡‰ƒ‰‡‡––‡ƒǤ
OCTOBER 2013 49
TECHNICAL EXCELLENCE
AUDIT PLANNING

šƒ’Ž‡•‘ˆƒ––‡”•–Šƒ–…ƒ„‡
†‹•…—••‡†ƒ”‡ǣ
 Žƒ”‹ϐ‹…ƒ–‹‘™‹–Šƒƒ‰‡‡–‡–
‘–Š‡——•—ƒŽȀ•‹‰‹ϐ‹…ƒ–
Š‡
˜ƒ”‹ƒ…‡‹†‡–‹ϐ‹‡††—”‹‰–Š‡
’”‡Ž‹‹ƒ”›ƒƒŽ›–‹…ƒŽ”‡˜‹‡™Ǣ ™Ǣ
 “—‹”›‘ˆ•‹‰‹ϐ‹…ƒ–
†‡˜‡Ž‘’‡–•Ȁˆ—–—”‡’Žƒ•
ˆ‘”–Š‡…‘’ƒ›ȋˆ‘”‡šƒ’Ž‡ǡ‡ǡ
…Šƒ‰‡•‹‡›ƒƒ‰‡‡–ǡǡ
–
’Žƒ–‘†‹•’‘•‡‘ˆƒ•‹‰‹ϐ‹…ƒ–
„—•‹‡••‘’‡”ƒ–‹‘‘”‡š’ƒ† †
‹–‘‘˜‡”•‡ƒ•ƒ”‡–•ȌǢ
 “—‹”›‘ˆ•‹‰‹ϐ‹…ƒ–‘”
’‘–‡–‹ƒŽ‹••—‡•ˆƒ…‡†„›
ƒƒ‰‡‡–ȋˆ‘”‡šƒ’Ž‡ǡ
›
‘„•‘Ž‡–‡•–‘…•ǡ…‘ŽŽ‡…–ƒ„‹Ž‹–›
‘ˆ–”ƒ†‡”‡…‡‹˜ƒ„Ž‡•ȌǢ
 “—‹”›‘ˆƒƒ‰‡‡–̵•
ƒ••‡••‡–‘ˆ–Š‡’‘–‡–‹ƒŽ
”‹•–Šƒ––Š‡ϐ‹ƒ…‹ƒŽ
•–ƒ–‡‡–•ƒ›„‡ƒ–‡”‹ƒŽŽ› Ž›
‹••–ƒ–‡††—‡–‘ˆ”ƒ—†–Šƒ–
‘……—””‡††—”‹‰–Š‡›‡ƒ”ȋˆ‘” ”
‡šƒ’Ž‡ǡ‹•ƒ’’”‘’”‹ƒ–‹‘
‘ˆ’‡––›…ƒ•Š‘”—ƒ—–Š‘”‹•‡††
‡ŽȌǤ
’ƒ›‡–„›ϐ‹ƒ…‡’‡”•‘‡ŽȌǤ
Š‡ƒ„‘˜‡†‹•…—••‹‘…ƒ
„‡’‡”ˆ‘”‡†–Š”‘—‰Šƒˆ‘”ƒŽ
‡‡–‹‰‘”ƒ…‘ˆ‡”‡…‡…ƒŽŽ™‹–Š–Š‡‡
ƒƒ‰‡‡–Ǥ

iii) ‡”ˆ‘”ƒ™ƒŽ–Š”‘—‰Š‘ˆ–Š‡‡› ›
„—•‹‡••’”‘…‡••‡•‘ˆ–Š‡…‘’ƒ› ›
‡ǡ
•—…Šƒ•–Š‡”‡˜‡—‡Ȁ”‡…‡‹’–…›…Ž‡ǡ
’—”…Šƒ•‡Ȁ’”‘…—”‡‡–’ƒ›‡– –
…›…Ž‡ǡ‹˜‡–‘”›…‘–”‘Ž…›…Ž‡
ƒ†’ƒ›”‘ŽŽ…›…Ž‡–‘‡˜ƒŽ—ƒ–‡–Š‡
†‡•‹‰‡ˆˆ‡…–‹˜‡‡••‘ˆ–Š‡‹–‡”ƒŽ ‹••–ƒ–‡‡–•‹–Š‡ϐ‹ƒ…‹ƒŽ ›‡ƒ”ƒ†‹…‘”’‘”ƒ–‡‡…‡••ƒ”›
…‘–”‘Ž‘ˆ–Šƒ–…‘’ƒ›Ǥ •–ƒ–‡‡–•Ǥ …Šƒ‰‡•–‘–Š‡ƒ—†‹–ƒ’’”‘ƒ…Š‹–Š‡
—…Šƒ™ƒŽ–Š”‘—‰Š ƒ—†‹–’ŽƒǤ
™‘—Ž†‹…Ž—†‡ƒ‹š‘ˆ‹“—‹”› ‘”ƒ”‡…—””‹‰ƒ—†‹–ǡ–Š‡ˆ‘…—•
‘ˆƒ’’”‘’”‹ƒ–‡’‡”•‘‡Žǡ
‘„•‡”˜ƒ–‹‘‘ˆ–Š‡…‘’ƒ›̵•
‘’‡”ƒ–‹‘•ǡƒ†‹•’‡…–‹‘‘ˆ
™‘—Ž†„‡†‹ˆˆ‡”‡–ƒ•‘•–‘ˆ–Š‡
‹ˆ‘”ƒ–‹‘™‘—Ž†Šƒ˜‡„‡‡‘„–ƒ‹‡†
–Š”‘—‰Š’”‡˜‹‘—•‡š’‡”‹‡…‡‘ˆ
Q3 HOW CAN THE
AUDITOR PREPARE
A MORE EFFICIENT AND
”‡Ž‡˜ƒ–†‘…—‡–ƒ–‹‘ǤŠ”‘—‰Š ƒ—†‹–‹‰–Šƒ–…‘’ƒ›Ǥ•—…Šƒ EFFECTIVE AUDIT PLAN?
–Š‡™ƒŽ–Š”‘—‰Šǡ–Š‡ƒ—†‹–‘” ƒ—†‹–ǡ–Š‡ƒ—†‹–‘”‡‡†•–‘‘„–ƒ‹ƒ ‘•–•ƒŽŽƒ†‡†‹—Ǧ•‹œ‡†
†‡–‡”‹‡•™Š‡–Š‡”–Š‡†‡•‹‰ —’†ƒ–‡‘ƒ›•‹‰‹ϐ‹…ƒ–…Šƒ‰‡• ’”ƒ…–‹…‡•ȋ•Ȍǡ–Š‡ƒ—†‹–‘”•ƒ›
‘ˆ–Š‡…‘–”‘Ž•‹•‡ˆˆ‡…–‹˜‡ƒ† –‘–Š‡…‘’ƒ›̵•‘’‡”ƒ–‹‘•ƒ† ƒ†‘’–ƒ•–ƒ†ƒ”†ƒ—†‹–’”‘‰”ƒ‡
PHOTO GETTY IMAGES

™Š‡–Š‡”–Š‡…‘–”‘Ž•ƒ”‡…ƒ””‹‡† ‹–‡”ƒŽ…‘–”‘Ž•ǡƒ•™‡ŽŽƒ•…Šƒ‰‡• •—…Šƒ•–Š‘•‡‹–Š‡—†‹–ƒ—ƒŽ

‘—–„›’‡”•‘•™‹–Š–Š‡‡…‡••ƒ”› –‘–Š‡‡š–‡”ƒŽ‡˜‹”‘‡–ǤŠ‡”‡ ‹••—‡†„›‘”‘–Š‡”–Š‹”†Ǧ’ƒ”–›
ƒ—–Š‘”‹–›ƒ†…‘’‡–‡…‡–‘ •‹‰‹ϐ‹…ƒ–…Šƒ‰‡•ƒ”‡‹†‡–‹ϐ‹‡†ǡ–Š‡ ’”ƒ…–‹…‡ƒ‹†•Ǥ—†‹–‘”•‡‡†–‘„‡™ƒ”›
’”‡˜‡–‘”†‡–‡…–‡””‘”•‘”ˆ”ƒ—† ƒ—†‹–‘”™‘—Ž†‡‡†–‘…‘•‹†‡”–Š‡ ‘ˆƒ†‘’–‹‰–Š‡•‡ƒ—†‹–’”‘‰”ƒ‡•
–Šƒ–…‘—Ž†”‡•—Ž–‹ƒ–‡”‹ƒŽ ‹’Ž‹…ƒ–‹‘–‘–Š‡ƒ—†‹–ˆ‘”–Š‡…—””‡– ‘”’”ƒ…–‹…‡ƒ‹†•™‹–Š‘—–’”‘’‡”

50 IS Chartered Accountant
 ’”‘‰”ƒ‡•‘–Šƒ–Š‡…ƒ’”‘’‡”Ž› ‘ˆ–Š‡…‘’ƒ›Ǣ
…ƒ””›‘—––Š‡’”‘…‡†—”‡•†—”‹‰–Š‡  Going concern†‹…ƒ–‹‘•–Šƒ–
’Žƒ‹‰’”‘…‡••Ǥƒ††‹–‹‘ǡ–Š‡ –Š‡…‘’ƒ›ƒ›‘–„‡ƒ„Ž‡–‘
—†‹–ƒ—ƒŽ•‡”˜‡•‘Ž›ƒ•ƒ‰—‹†‡ …‘–‹—‡ƒ•ƒ‰‘‹‰…‘…‡”‹
–‘–Š‡ƒ—†‹–‘”Ȃ‹–‹•‘–ƒ‘‡Ǧ•‹œ‡Ǧ –Š‡‡š–ͳʹ‘–Š•ǡ•—…Šƒ•‡–
ϐ‹–•ǦƒŽŽƒ—†‹–ƒ’’”‘ƒ…Š–‘ƒŽŽ Ž‹ƒ„‹Ž‹–‹‡•’‘•‹–‹‘Ǣ
–›’‡•‘ˆƒ—†‹–ǤŠ‡ƒ–—”‡  Competency of ϔinance personnel
s ƒ†•‹œ‡‘ˆ‡ƒ…Š…Ž‹‡–̵•
‘’‡”ƒ–‹‘ǡ–Š‡…‘’Ž‡š‹–›
‹ƒ…‡’‡”•‘‡ŽŽƒ…•
ƒ’’”‘’”‹ƒ–‡ƒ……‘—–‹‰
SSA 300 para 6 requires
‘ˆ‡ƒ…Š‡‰ƒ‰‡‡–ƒ† ƒ†ϐ‹ƒ…‹ƒŽ”‡’‘”–‹‰•‹ŽŽ•Ǥ
the auditor to perform ‘–Š‡”‹ˆ‘”ƒ–‹‘‘„–ƒ‹‡†
preliminary engagement †—”‹‰–Š‡’Žƒ‹‰’”‘…‡•• —…Š”‹••‰‡‡”ƒŽŽ›ƒˆˆ‡…–‘•–
activities regarding ’Žƒ›ƒ’ƒ”–‹†‡…‹†‹‰–Š‡ ϐ‹ƒ…‹ƒŽ•–ƒ–‡‡–„ƒŽƒ…‡•ƒ†
(i) Engagement ‡š–‡–‘ˆ–Š‡”‹•ƒ••‡••‡– ™‹ŽŽ”‡“—‹”‡ƒ‘˜‡”ƒŽŽ”‡•’‘•‡ǡ
acceptance and ƒ†’Žƒ‹‰’”‘…‡••–‘„‡ •—…Šƒ•ƒ••‹‰‹‰‘”‡‡š’‡”‹‡…‡†
continuance; ’‡”ˆ‘”‡†Ǥ •–ƒˆˆǡ‹…”‡ƒ•‹‰•—’‡”˜‹•‹‘‘ˆ
(ii) Evaluation of ƒ‡–Š‡‡šƒ’Ž‡‘ˆ ™‘”’‡”ˆ‘”‡†„›Œ—‹‘”•–ƒˆˆ
ƒƒ—†‹–‘ˆƒ’”‘’‡”–› ƒ†‹…‘”’‘”ƒ–‹‰ƒ‡Ž‡‡–‘ˆ
compliance with ‹˜‡•–‡–…‘’ƒ›–Šƒ– —’”‡†‹…–ƒ„‹Ž‹–›‹–Š‡•‡Ž‡…–‹‘‘ˆ
ethical requirements ‘Ž›Š‘Ž†•ƒ•‹‰Ž‡’”‘’‡”–› –Š‡ƒ–—”‡ǡ–‹‹‰ƒ†‡š–‡–‘ˆƒ—†‹–
including independence, ™Š‹…Š‹••—„Ž‡––‘ƒ–Š‹”† ’”‘…‡†—”‡•Ǥ —”–Š‡”‰—‹†ƒ…‡‹••‡–‘—–
and (iii) Establishing
an understanding
of the terms of the
engagement.
’ƒ”–›Ǥ•–‡ƒ†‘ˆ…‘’Ž‡–‹‰
–Š‡‡–‹”‡ƒ—†‹–’Žƒ‹‰
•‡…–‹‘…‘–ƒ‹‡†‹–Š‡
—†‹–ƒ—ƒŽǡ–Š‡ƒ—†‹–‘”
ƒ›…Š‘‘•‡–‘†‘…—‡––Š‡
ƒ—†‹–’Žƒǡ‹…Ž—†‹‰’Žƒ‹‰
’”‘…‡†—”‡•ƒ†–Š‡”‡•—Ž–•ǡ‹
‹ʹͶͲ’ƒ”ƒʹͻǤ
–Š‡‘–Š‡”Šƒ†ǡƒ••‡”–‹‘
Ž‡˜‡Ž”‹••ƒ”‡”‹••–Šƒ–ƒ”‡Ž‹‹–‡†
–‘‘‡‘”‘”‡•’‡…‹ϐ‹…ƒ••‡”–‹‘•
‹ƒƒ……‘—–‘”‹•‡˜‡”ƒŽƒ……‘—–•ǡ
ˆ‘”‡šƒ’Ž‡ǡ–Š‡‘……—””‡…‡‘ˆ•ƒŽ‡•Ǥ
••‡”–‹‘Ž‡˜‡Ž”‹••ƒ”‡ƒ††”‡••‡†
ƒ•‹‰Ž‡’Žƒ‹‰‡‘”ƒ†—Ǥ–Š‹•
…ƒ•‡ǡ–Š‡ƒ—†‹–‘”‡‡†•–‘‡•—”‡–Šƒ–
–Š‡†‘…—‡–ƒ–‹‘ƒ††”‡••‡•ƒŽŽ–Š‡
’Žƒ‹‰”‡“—‹”‡‡–•ƒ†‹…Ž—†‡•
–Š‡‡…‡••ƒ”›†‡–ƒ‹Ž••—…Šƒ•–Š‡
ƒ—†‹–‘”̵•„ƒ•‹•ˆ‘”ƒ……‡’–ƒ…‡ƒ•™‡ŽŽ
ƒ•Š‹•”‹•ƒ••‡••‡–Ǥ
…—•–‘‹•ƒ–‹‘ǡ–‘ƒ˜‘‹†„‡‹‰–‘‘
Q4 WHAT IS THE
DIFFERENCE
BETWEEN RISKS AT
…Š‡…Ž‹•–•Ǧ‘”‹‡–‡†ǤŠ‹•‹•„‡…ƒ—•‡ FINANCIAL STATEMENT
–›’‹…ƒŽŽ›ǡ–Š‡–ƒ•‘ˆ’Žƒ‹‰–Š‡ƒ—†‹– LEVEL AND RISKS AT
‹•†‡Ž‡‰ƒ–‡†–‘Œ—‹‘”ƒ—†‹–•–ƒˆˆ™Š‘ ASSERTION LEVEL?
ƒ›‘–—†‡”•–ƒ†–Š‡”ƒ–‹‘ƒŽ‡ ͵ͳͷ’ƒ”ƒͳͲͷ•–ƒ–‡•–Šƒ–̶”‹••‘ˆ
‘ˆ’”‡’ƒ”‹‰ƒƒ—†‹–’Žƒ‘”–Š‡ ƒ–‡”‹ƒŽ‹••–ƒ–‡‡–ƒ––Š‡ϐ‹ƒ…‹ƒŽ
‘„Œ‡…–‹˜‡•‘ˆ–Š‡’”‘…‡†—”‡••–ƒ–‡†‹ •–ƒ–‡‡–Ž‡˜‡Ž”‡ˆ‡”–‘”‹••–Šƒ–
„›‹…Ž—†‹‰ƒ††‹–‹‘ƒŽ’”‘…‡†—”‡•
‘”˜ƒ”›‹‰–Š‡ƒ–—”‡ǡ–‹‹‰ǡƒ†
‡š–‡–‘ˆ•–ƒ†ƒ”†ƒ—†‹–’”‘…‡†—”‡•
ȋ”‡ˆ‡”–‘ƒ„Ž‡ͳ‘–Š‡‡š–’ƒ‰‡ˆ‘”
‹ŽŽ—•–”ƒ–‹‘ȌǤ
Q5 MUST REVENUE
RECOGNITION BE
INCLUDED AS A SIGNIFICANT
RISK IN ALL ENGAGEMENTS?
ʹͶͲȋȌ’ƒ”ƒʹ͸•–ƒ–‡•ǡ̶Š‡
‹†‡–‹ˆ›‹‰ƒ†ƒ••‡••‹‰–Š‡”‹••
‘ˆƒ–‡”‹ƒŽ‹••–ƒ–‡‡–†—‡–‘
ˆ”ƒ—†ǡ–Š‡ƒ—†‹–‘”•ŠƒŽŽǡ„ƒ•‡†‘ƒ
’”‡•—’–‹‘–Šƒ––Š‡”‡ƒ”‡”‹••‘ˆ
ˆ”ƒ—†‹”‡˜‡—‡”‡…‘‰‹–‹‘ǡ‡˜ƒŽ—ƒ–‡
™Š‹…Š–›’‡•‘ˆ”‡˜‡—‡ǡ”‡˜‡—‡
–Š‡ƒ—†‹–’”‘‰”ƒ‡Ǥƒ††‹–‹‘ǡ–Š‡ ”‡Žƒ–‡’‡”˜ƒ•‹˜‡Ž›–‘–Š‡ϐ‹ƒ…‹ƒŽ –”ƒ•ƒ…–‹‘•‘”ƒ••‡”–‹‘•‰‹˜‡”‹•‡–‘
Žƒ…‘ˆ–Š‡ƒ—†‹–’ƒ”–‡”̵•‹˜‘Ž˜‡‡– •–ƒ–‡‡–•ƒ•ƒ™Š‘Ž‡ƒ†’‘–‡–‹ƒŽŽ› •—…Š”‹••Ǥ̶ˆ–Š‡ƒ—†‹–‘”…‘…Ž—†‡•
ƒ†‹’—–•ƒ––Š‡’Žƒ‹‰•–ƒ‰‡ƒ› ƒˆˆ‡…–ƒ›ƒ••‡”–‹‘•Ǥ̶šƒ’Ž‡•‘ˆ –Šƒ––Š‡’”‡•—‡†”‹•‘ˆˆ”ƒ—†‘
”‡•—Ž–‹‹‡ˆϐ‹…‹‡–ƒ—†‹–•ƒ†Ȁ‘” •—…Š”‹••‹…Ž—†‡„—–ƒ”‡‘–Ž‹‹–‡† ”‡˜‡—‡”‡…‘‰‹–‹‘‹•‘–ƒ’’Ž‹…ƒ„Ž‡‹
Š‹‰Š‡”ƒ—†‹–”‹••Ǥ –‘–Š‡ˆ‘ŽŽ‘™‹‰ǣ –Š‡…‹”…—•–ƒ…‡•‘ˆ–Š‡‡‰ƒ‰‡‡–ǡ
–‹•‹’‘”–ƒ––Šƒ––Š‡ƒ—†‹–‘”  Management override of controls –Š‡ƒ—†‹–‘”•Š‘—Ž††‘…—‡––Š‡
—†‡”•–ƒ†•–Š‡‹–‡†‡†—•‡‘ˆ ”‡•‡…‡‘ˆ†‘‹‡‡”‹‰„‘ƒ”†‘ˆ ”‡ƒ•‘ȋ•Ȍˆ‘”•—…Š…‘…Ž—•‹‘Ǥ
‡ƒ…Šƒ†‡˜‡”›•‡…–‹‘…‘–ƒ‹‡† †‹”‡…–‘”•ƒ†•‡‹‘”ƒƒ‰‡‡– ‡–ƒ‡ƒ‡šƒ’Ž‡‘ˆƒ…‘’ƒ›
™‹–Š‹–Š‡ϐ‹”̵••–ƒ†ƒ”†ƒ—†‹– ™Š‹…Š‘˜‡”•‡‡–Š‡†ƒ‹Ž›‘’‡”ƒ–‹‘• –Šƒ–‰‡‡”ƒ–‡•”‡–ƒŽ‹…‘‡„›

OCTOBER 2013 51
 TECHNICAL EXCELLENCE
AUDIT PLANNING

TABLE 1Assertion risk action plan extracted from C8.3 of the Audit Manual (for illustration only)

H, FINANCIAL REPORTING
SPECIFIC RISK M,
MANAGEMENT AREAS & ASSERTIONS
AUDIT OUTCOME
AFFECTING CLIENT L
RESPONSE AFFECTED
APPROACH (FINAL AUDIT)

Revenue recognition –
presumed risk of fraud
(key management's
remuneration is linked
to the sales of the
company)
H Management commented Sales – Occurrence > Select 20**additional Cross-referenced
that the company has samples (based on to work
controls in place to check auditor’s judgement) for performed in the
the validity of the sales. sales that occurred in respective audit
the last quarter of the sections.
WORK PERFORMED financial year.
Refer to evaluation
performed in C5.1*; noted > Review the (i) journal
that there is no proper entries passed and
segregation of duties and (ii) credit notes issued
hence substantive testing two months** after the
approach is adopted. financial year for any
reversal of revenue.

*C5.1 - Review of design & implementation of internal controls is not illustrated in this example.
**For our illustration purpose, the sample size and period of review are determined based on the auditor’s judgement specific to the circumstance set out in the question.

Ž‡ƒ•‹‰‹–•’”‘’‡”–›–‘ƒ–Š‹”†’ƒ”–›Ǥ
Š‡”‡–ƒŽƒ””ƒ‰‡‡–„‡–™‡‡
–Š‡…‘’ƒ›ƒ†–Š‡–Š‹”†’ƒ”–›‹•
•—’’‘”–‡†„›ƒƒ‰”‡‡‡–™Š‹…Š
‹…Ž—†‡•–‡”•ƒ†…‘†‹–‹‘•–Šƒ–
ƒ”‡—–—ƒŽŽ›ƒ‰”‡‡†„›„‘–Š’ƒ”–‹‡•
ƒ†–Š‡–‘–ƒŽ”‡–ƒŽ‹…‘‡ˆ‘”
–Š‡›‡ƒ”…ƒ„‡‡ƒ•‹Ž›”ƒ–‹‘ƒŽ‹•‡†
ȋƒ••—‹‰ϐ‹š‡†‘–ŠŽ›”‡–ƒŽ
…Šƒ”‰‡ȌǤŠ‡ƒ—†‹–‘”Šƒ•‡˜ƒŽ—ƒ–‡†
–Š‡”‹•”‡Žƒ–‹‰–‘–Š‡”‡–ƒŽ‹…‘‡
–ƒ‹‰‹–‘…‘•‹†‡”ƒ–‹‘–Š‡ˆ”ƒ—†
”‹•ˆƒ…–‘”•Ž‹•–‡†—†‡”’’‡†‹šͳ
–‘ʹͶͲƒ†Šƒ•…‘…Ž—†‡†–Šƒ–
–Š‡”‹•‘ˆƒ–‡”‹ƒŽ‹••–ƒ–‡‡–‘ˆ
”‡–ƒŽ‹…‘‡†—‡–‘ˆ”ƒ—†‹•
Ž‘™Ǥ†‡”•—…Š…‹”…—•–ƒ…‡•ǡ
s –Š‡ƒ—†‹–‘”‡‡†•–‘†‘…—‡–
–Š‡ƒ–—”‡‘ˆ–Š‡”‡˜‡—‡ǡ–Š‡
If the auditor concludes ‡˜ƒŽ—ƒ–‹‘‘ˆ–Š‡”‹••‹…Ž—†‹‰
that the presumed risk –Š‡ˆ”ƒ—†”‹•ˆƒ…–‘”•…‘•‹†‡”‡†
of fraud on revenue ƒ†–Š‡…‘…Ž—•‹‘–Šƒ––Š‡”‹•
recognition is not ”‡Žƒ–‹‰–‘”‡˜‡—‡ȋ–Šƒ–‹•ǡ
applicable in the ”‡–ƒŽ‹…‘‡Ȍ‹•Ž‘™ǤISCA
circumstances
of the engagement,
PHOTO SHUTTERSTOCK

Magdalene Ang is a Quality

the auditor should Assurance Manager at ISCA. She
is a Reviewer under the Quality
document the reason(s) Assurance Review Programme
(QARP). Public Accountants who
for such conclusion. are keen to sign up for or find out
more about the QARP can contact
her at tel: 6597-5520 or email:
qualityassurance@isca.org.sg.

52 IS Chartered Accountant