Audit Process Client Acceptance and Continuance Decisions Client Acceptance Competence – alam ung industry and nature ng client Capability – kaya natin gawin ang isang audit Resources- human resources para gawin ang audit at maggawa ang audit sa time na binigay ng client Ethical Requirements – lahat kailangan sumunod ng Code of Ethics - Integrity - Confidentiality - Objectivity - Professional competence and due care - Professional behaviour Kailangan taglayin ng isang cpa – independence Integrity of the Client Management – kaya ba ibigay ng client ung tunay na information dahil kapag na associate sa entity na walang integrity maaaring masira ang pangalan ng isang auditor. Predecessor Auditor – dating auditor ng client entity - Kailangan makipag communicate sa dating auditor - Kapag hindi nakausap si predecessor, pede kumuha ng ibang source - Conditions para makausap si predecessor: kailangan ng consent ni client - Kailangan din kumuha ng consent ni predecessor kay client bago sagutin mga tanong ng current auditor Agreeing the terms of Audit Management – kailangan magagree ni client sa terms ng auditor - Engagement letter – contract and terms ni client and auditor a. Audit fees b. Type of assurance c. Responsibilities ni management and auditor d. Scope kung hanggang kelan ung engagement e. Bawal magstart ang engagement ng walang engagement letter f. Sa simula binibigay - Management Representation Letter – sinasabi ng management na inaacknowledge niya ung responsibility ng management and sinasabi niya na valid lahat ng evidence na pinresent niya kay auditor a. Sa dulo ng engagement binibigay Client Continuance - Aalamin kung itutuloy pa ba ung audit engagement with the client Revision on Terms of Audit Engagement Kung may nagbago sa terms ng audit engagement Kung meron ka pa bang competence kasi baka nag expand ung operation ng business Iconsider if nasusunod pa ba ung ethical requirements Iconsider kung may integrity pa ba ung client baka kasi nagiba ng ownership If need bai revise ung terms Reminder on Terms of Audit Engagement Iremind ng terms and magsend ng engagement letter para hindi makalimutan Magbibigay ka lang ulit ng engagement letter kapag nagbago ng management and feel mo nakakalimutan na ung mga terms Initial Audit Planning – “Planning is not a discrete phase, but continual and iterative” - Hindi ginagawa ang planning sa isang stage lang kundi dere deretso mo itong ginagawa dahil eventually nirerevise mo ito hanggang nababago ung risk assessment Risk Assessment - irerevise mo hanggang sa meron kang nadidiscover nab ago Risk Assessment Procedures “must” o Inquiry – magtanong sa management o Analytical Procedures- tinitingnan natin ung mga unusual transaction Analysis of plausible relationships Ratios Trends Tinitingnan ung mga abnormalities o Observation and Inspection – di sapat na mag tanong ka sa management kasi baka hindi totoo ung sinasabi kaya kailangan mo mag observe at manood ng mga ginagawa nila and mag inspect ng mga documents o Other factors considered Prior period information – information na naobtain sa prior period. Makakatulong sa risk assessment ung experience mo sa past periods Engagement team discussion – malaking tulong kapag nag uusap ung engagement team. Importante na nag uusap ung mga key members ng team. Nag uusap para mashare ung mga assessment and information based sa experiences nila galling sa mga same industries Understanding the entity and its environment o Industry – alamin san industry nag ooperate si client Accounting practices alamin ung accounting practice sa industry na un Laws and Regulations Baka covered ung industry nila ng special laws May mga kailangang permits o Nature – pag aralan ung nature ng business Operations – pano kinoconduct ung operation Ownership & Governance – sino ang may ari ng busines if sole or partnership and sino ang in charge sa governance Structure – organizational chart ng entity para Makita sino ung mga may diff responsibilities o Accounting Policies – anong method ginagamit ng client and kung paano dinedetermine ung estimates niya and procedure if may uncertainty o Objectives and strategies – objectives and strat ng management and entity dahil baka magkaiba sila. Magkakaroon ng goal conflict and tataas ung risk kapag magkaiba ung obj ng management at client o Methods and measuring and reviewing performance – paano minemeasure and nirereview ung performance ng management if meron bang material and significant bonus kapag tumaas ung income etc. baka kasi may pressure sa management na magconduct ng window dressing para lang maachieve ung mga targets na sinet ng entity Understanding the Entity’s Internal Control o Over Financial Reporting Materiality o Overall materiality – threshold or cut-off point at the FS level – hanggang jan lang pwede nating itolerate na misstatements pag lumagpas dun, icoconsider na natin na materially misstated ang isang FS Performance Materiality less than the level of overall materiality – ung threshold natin ay binababaan pa natin para mabawasan ung risk baka kasi ung mga di natin an detect na misstatements ay lumagpas sa overall materiality. Allowance sa materiality highly based sa judgement ni auditor Materiality level for Transaction, Account Balance, or Disclosure Inaallocate ung overall materiality sa diff accounts High level assurance that the financial statements are free from material misstatements, either due to fraud or error” Audit Risk Model – o Audit Risk = Inherent Risk x Control Risk x Detection Risk Audit Risk – baka mali ung audit opinion natin Inherent Risk – susceptibility sa misstatements Control risk – risk nab aka hindi nadetect ng internal control ng client ung mga misstatements Ineherent and control – Material baka mali ung FS Detection Risk – baka di madetect ung mga misstatements. Detection Risk = (inherent Risk x Control Risk)/Audit Risk o Overall Audit Strategy – plano para sa buong engagement Scope, timing and direction of the audit Audit plan – mas detailed na plan. Nature, timing, and extend of procedures kung ano ano ba gagawin Audit Program – mas specific na procedures. Set of instructions to assisstants
