Purpose of audit planning

1. Assess information obtained from visit to client and identify high risk area in
financial statement, then focus on those risk areas by performing more
substantive test, thereby reduce audit risk to acceptable level to maintain
good reputation in the business community.
2. To facilitate control and proper assignment of work to audit staff, coordination
and review of final audit work done.
3. To identify if any training needs specifies to the client or where experts are
required.
4. By avoiding re-performing of task, audit cost could also be keep in reasonable
range and help the audit firm to remain competitive.

ICQ & ICEQ

ICQs: are used to ask whether controls exist which meet specific control objectives.
The major question which internal control questionnaires are designed to answer is
How good is the system of controls?
When strengths are identified, the auditors will perform work in the relevant areas.
If, however, weaknesses are discovered they should then ask:
What errors or irregularities could be made possible by these weaknesses? Could
such errors or irregularities be material to the accounts?
ICEQ: are used to determine whether there are controls which prevent or detect
specified errors or omissions rather than whether certain desirable controls are
present.
This is achieved by reducing the control criteria for each transaction stream down to
a handful of key questions (or control questions).
The characteristic of these questions is that they concentrate on the significant
errors or omissions that could occur at each phase of the appropriate cycle if
controls are weak.

Purposes of letter of representation

1. To remind management whereby it is their responsibility for the fair
presentation of financial statements especially in those smaller companies
which lack of personnel with expertise in accounting.
2. To remind management of potential misstatements or omissions in the
financial statements.
3. To document the response from management for inquiry about various
aspects of the audit which serve the purpose to:
Provides written documentation which is more formal than oral
communication of client representations in the event of disagreement
or a lawsuit between the auditor and client

Auditor responsibility on GC

Test the assumption

Event or conditions happened that give rise to GC issue with
EXAMPLE
Assess whether there is any preliminary assessment done by
management
i.e. forecasted cash flow/business turnaround plan
Evaluate on the assessment (CF+Plan)
Reliability of data
Foreseeable of execution of plan?
Any supporting to support the assumptions
If it is not reasonable (data/plan)
Consider any additional fact/information to be available for the
management
Obtain management representation letter to confirm on the GC
assumption for the business

Audit Documentation

Benefits
1. Working paper can help in the supervision of the audit work. The
engagement partner needs to supervise the work delegated by
him has been properly performed. Hence, by asking audit staff
to produce detailed working papers, he is able to monitor the
process of auditing
2. Working paper serve as evidence of work performed and
conclusions drawn in order to form opinion. This can invaluable
sources of evidence in the litigation case where the Court orders
the auditor to produce evidence.
3. The preparation of working papers encourages the auditors to
adopt a high quality of auditing.
4. Working papers will provide, for future reference details of audit
problems encountered.

Why materiality assessment is important to auditor

1. It assists the auditor to determine whether true and fair view has been
distorted, deciding the appropriate type of audit report given in a different
circumstance.
2. It enables the auditors to restrict the scope of audit work, and hence to make
the most efficient use of time and staff and also avoiding unnecessary testing
those immaterial item.
3. It indicates the amount of audit work should be done on specific area,
thereby helping the audit firm to determine the number of audit junior on
different areas.
4. Without setting a materiality level, auditors have to find all the
misstatements which are impossible. By nature of audit, auditors are
responsible for obtaining reasonable assurance that this materiality threshold
has been satisfied.

Preliminary materiality maximum amount by which auditor believe

the financial statements could be misstated and still not affect the
decisions of reasonable users.
Establish acceptable materiality level qualitative factors such as
previous year misstatement, potential fraud or illegal acts or trend in
earning compare to industry. (favorable PM higher, vice versa)
Materiality base Total assets (asset base), total revenues
(supermarket), PBT, Equity (New startup)

Reason to understand ICS

1. Assess their reliability for the presentation of financial statement and design
suitable audit procedures.
2. Identify the types of potential misstatements
3. Determine the control risk level
4. Determine the audit strategy and plan audit tests.