The PWC Audit

The PwC Audit
A Continuous Improvement Approach to Audit Methodology
pwc
Agenda
Governance of PwC Audit Overview of recent evolution of PwC Audit Overview key elements of PwC Audit Acceptance and Continuance Audit Comfort Cycle Substantive Procedures Other Audit Procedures Audit Committee Communications Plan
PricewaterhouseCoopers
PwC Audit Governance

Global Audit Policy Board
Establish global overarching policy principles & goals and ratify policy statements.
Global R&Q
Ensure methodology is consistently implemented by providing feedback on practice issues.
Global Audit Methodology Steering Group

Drive execution of policy in practice through processes, tools, guidance, training content, etc.
Implementation Partner Network

2 PricewaterhouseCoopers
Towards Performance Audit: a continuous improvement program

PwC Audit
PwC Audit
2003:
2002:
2001:
Audit Comfort Cycle Management controls focus Show me and Taking stock Team redeployment Business analysis framework Enhanced audit guides/ practices Scaling up different client situations MyClient integration
Converged approach, enhanced testing guidance Enhanced client communications, transparency focus Application to small companies/ MNCs Better use of specialists and knowledge sources
Time
Historical Financial Statements Opinion

3
Changes in Deliverables
Changing the Focus of the Audit Model
Key Risk Key Risk
Key Risk Key Risk
Key Risk
Key Risk
Business Risks
4
Audit Risks Identified

PwC Audit in 2004

Acceptance and Continuance (FRISK)
Audit Comfort Cycle Scoping Understanding Evaluating Validating Substantive Testing Other Audit Procedures Audit Committee Communications Plan
PwC Audit Approach

Acceptance/Continuance Assessment
Audit Comfort Cycle

No / Limited controls comfort Other audit evidence Mainly tests of details Mainly substantive analytical procedures Significant controls comfort
Other audit procedures Financial statements Completion
PwC Audit Approach With Attestation

Acceptance/Continuance Assessment
Broader and deeper assessment of COSO controls over financial reporting, including managements evaluation of those controls. e.g., estimates, fraud, tax accrual, more locations.
Report on managements assertions on internal controls over financial reporting
Audit Comfort Cycle

No / Limited controls comfort Other audit evidence Mainly tests of details Mainly substantive analytical procedures Significant controls comfort
Additional procedures deemed necessary to provide independent assurance on financial statements, taking into consideration the internal controls assessment.
Other audit procedures Financial statements Completion
Report on Financial Statements
Acceptance & Continuance Process

Governance and oversight of management
Past performance Managements expertise and skill Adequacy of management resources Audit relationship
Audit adjustments
Revenue recognition Accounting control Integrity and ethics Management inclination for intentional misstatement in financial reporting Reliability of estimates Incentive for intentional misstatements in financial reporting Risk of insolvency
Acceptance & Continuance Process

Risk Conditions (13) (defined within Acceptance & Continuance module) Engagement Leader and Team Manager apply professional judgment in describing specific Key Risks that relate to the broader Risk Conditions 1 Key Risks
2 Risk and Approach Schedule
(user defined or selected from Master Data)
The Risk and Approach Schedule is populated by the Key Risks selected and completed by the Engagement Leader and Team Manager
Audit Comfort 3 Matrix
MyClient Client File

Audit Comfort Cycle

ACCEPTANCE/CONTINUANCE ASSESSMENT
4 Key Questions What does management need to get comfort on? How does management get comfort? Are they entitled to that comfort? Can we audit that comfort?
Market Overview
Strategy
Value Creating Activities
Financial Performance
Audit comfort cycle

SIGNIFICANT CONTROLS COMFORT NO/LIMITED CONTROLS COMFORT
SUBSTANTIVE AUDIT EVIDENCE MAINLY SUBSTANTIVE ANALYTICAL PROCEDURES MAINLY TESTS OF DETAILS
OTHER AUDIT PROCEDURES FINANCIAL STATEMENTS COMPLETION
10
Audit Comfort Cycle

Market Overview
Strategy
What does management need to get comfort on?
Audit comfort cycle

11
Scoping: Forming a Point of View

Perform company and industry analytical procedures
Research and analyze external communications Partners connect with staff members Document the teams understanding of the business Knowledge broker to capture and share industry information Form a point of view on the risks that management should be concerned about
12
Scoping: Business Analysis Framework
13
Scoping: Risk Assessment Key Risks

Business Risks
Key Risk
Key risks are those conditions or factors within an audit that, in We identify audit risk the judgment the auditor, give through of understanding entitysrisk business rise tothe a greater of material objectives and related financial misstatement or other risks. matters resulting in the issuance of an inappropriate audit report.
Key Risk
Key Risk Key Risk
Key Risk
Audit Risks
Scoping: Analytical Procedures

High Level Understand the business Identify areas of risk
Disaggregated Account Level Determine the nature, timing & extent of testing External benchmarking to peers, market trends Looking for anomalies, areas of risk Use of extensive knowledge management tools available
15
Scoping Translated into Audit Strategy
Business Objectives
Risks
Stakeholders
Controls
Alignment
Where controls over significant account balances or classes of transaction are not aligned, we will need to perform substantive tests of details.
Scoping: Audit Team of Specialists

Computer-Assisted Audit Techniques Financial Business Risk Project Management Energy Trading Risk Business Resilience Business Process Enterprise-wide Risk
Objectives
Risks
Stakeholders
Performance Improvement
Controls
Data Risk Fraud
Internal Audit
Security Systems & Technology
Regulatory/ Compliance
Alignment
Treasury
Our best teams use our specialist capabilities to help in forming a point of view.
Scoping: Use of Specialists

Policies for the use of Systems and Process Assurance specialists and Fraud Risk & Controls specialists are based around risk attributes
Policies are for consultation with specialists level of involvement remains a decision of engagement leader At a minimum, Required to consider use of specialists at mobilization stage
18
Audit Comfort Cycle

4 Key Questions What does management need to get comfort on?
Market Overview
Strategy
How does management get comfort? Are they entitled to that comfort? Can we audit that comfort?
Audit comfort cycle

19
Applying Audit Comfort Cycle from the Top-Down

Organize audit team to align with how management runs the business. Audit controls from the top down
Board Sr Mgmt Department Heads
Extend discussions about business objectives & risk to management controls. Understand & evaluate how management controls risk. Validate controls against engagement teams point of view.
Operations
Transaction Processing
20
Taking Stock: Real-Time Linkage in the Iterative Process

Share team members cumulative knowledge
Update risk identification and assessment Consider the audit comfort gained to date, by audit assertion Answer: Do we have enough comfort? Answer: What do we do next?
21
Connecting the Dots

Business Objectives
Business Process A Completeness Accuracy Validity Restricted Access
Account Balances and Transactions
Financial Statement Assertions/ Audit Objectives Classes of Transactions Occurrence Completeness Accuracy Cutoff Classification Account Balances Rights & Obligations Existence Completeness Accuracy/Valuation Presentation & Disclosure Occurrence/R&O Completeness Understandability Accuracy/Valuation
Business Risks related to achieving Objectives
Business Process B Completeness Accuracy Validity Restricted Access
Business Process C Completeness Accuracy Validity Restricted Access
General Computer Controls
22
Audit Comfort Matrix
23
Summary of Comfort
24
Substantive Audit Evidence

Market Overview
Strategy
Audit comfort cycle

25
Achieving the Right Balance

No/Limited Controls Comfort Significant Controls Comfort
26
Assurance Hierarchy
Will we obtain audit assurance from tests of controls?
Yes No
Test controls.
Can we obtain audit assurance from substantive analytical procedures?
Yes No
Perform substantive analytical procedures.
Do we need additional audit assurance?
Yes
Perform tests of details.
27
No
No further testing required.
Other Audit Procedures

Market Overview
Strategy
Audit comfort cycle

28
Other Audit Procedures: More Connecting the Dots

Link management information to financial statements
Review adjustments necessary to reconcile management information to the financial statements Review non-standard journal entries and other adjustments to ascertain whether entries may be indicative of fraud based upon the risk of management override on controls
Perform ongoing analytical procedures, including updating analytical procedures related to revenue
29
Audit Committee Communications Framework: Objectives

Promote effective and candid communications
Enhance timely reporting, dialogue and sharing views Service approach Risk and Control Financial Reporting Governance
Provide consistency in our deliverables through recommended templates and practice aids
Audit Committee Communications Plan

Getting started Understanding the audit Staying informed Resolution and completion
[Indicate timing]
[Indicate timing]
Our audit plan
[Indicate timing]
[Indicate timing]
Service approach
PwC principles and practices Communications plan
Engagement letter and independence confirmation
Reporting timetable Business unit scope Engagement team Other deliverables
Risk analysis
Risk and control
Risk condition alert
Perspectives on fraud risk
Internal control and business issues report
Update on accounting/audit issues and risk analysis
Other regulatory requirements plan
Reporting requirements
Financial reporting
Quarterly review
Quarterly review
Quarterly review
Best practices in corporate reporting
Internal control deficiencies Accounting policies Management judgments Quality of earnings Independence Transparency Audit opinion
Transparency of corporate reporting
Governance
Corporate governance: roles and practices
Assessing our performance and yours
Ongoing assessment of needs & expectations
31
The PwC Audit

Global approach adaptable to all clients
Designed for continuous improvement Performance metrics will play a larger role in future audits Audit quality is at the core of our long term business objectives.
32
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Drepturi de autor:

Formate disponibile

A Continuous Improvement Approach to Audit Methodology

PwC Audit Governance

Global Audit Methodology Steering Group

Implementation Partner Network

Towards Performance Audit: a continuous improvement program

Historical Financial Statements Opinion

Changing the Focus of the Audit Model

Key Risk Key Risk

Key Risk Key Risk

Audit Risks Identified

PwC Audit in 2004

PwC Audit Approach

Audit Comfort Cycle

Other audit procedures Financial statements Completion

PwC Audit Approach With Attestation

Audit Comfort Cycle

Other audit procedures Financial statements Completion

Report on Financial Statements

Acceptance & Continuance Process

Acceptance & Continuance Process

2 Risk and Approach Schedule

(user defined or selected from Master Data)

Audit Comfort 3 Matrix

MyClient Client File

Audit Comfort Cycle

Value Creating Activities

Audit comfort cycle

OTHER AUDIT PROCEDURES FINANCIAL STATEMENTS COMPLETION

Audit Comfort Cycle

What does management need to get comfort on?

Value Creating Activities

Audit comfort cycle

OTHER AUDIT PROCEDURES FINANCIAL STATEMENTS COMPLETION

Scoping: Forming a Point of View

Scoping: Business Analysis Framework

Scoping: Risk Assessment Key Risks

Key Risk Key Risk

Scoping: Analytical Procedures

Scoping Translated into Audit Strategy

Scoping: Audit Team of Specialists

Scoping: Use of Specialists

Audit Comfort Cycle

4 Key Questions What does management need to get comfort on?

Value Creating Activities

Audit comfort cycle

OTHER AUDIT PROCEDURES FINANCIAL STATEMENTS COMPLETION

Applying Audit Comfort Cycle from the Top-Down

Taking Stock: Real-Time Linkage in the Iterative Process

Connecting the Dots

Business Process A Completeness Accuracy Validity Restricted Access

Account Balances and Transactions

Business Risks related to achieving Objectives

Business Process B Completeness Accuracy Validity Restricted Access

Account Balances and Transactions

Business Process C Completeness Accuracy Validity Restricted Access

Account Balances and Transactions

General Computer Controls

Audit Comfort Matrix

Substantive Audit Evidence

Value Creating Activities

Audit comfort cycle

OTHER AUDIT PROCEDURES FINANCIAL STATEMENTS COMPLETION