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Chapter 6

Audit Process

TermDefinition
An essential requirement for achieving quality on the audit is that the engagement team apply the highest level of professional ethics. The fundamental principles of which include? Integrity (self-honesty) Objectivity (independent thought, freedom from bias) Professional competence and due care Confidentiality, and Professional behaviour.
Assertions Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur.
Three words that define the audit strategy Scope, timing and direction
Preliminary engagement activities involves This stage provides the opportunity for the audit firm to assess whether a professional relationship with the prospective client should be accepted or whether the relationship with an existing client should be continued.
Responding to assessed risk stage The auditor should obtain sufficient, appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks.
Preliminary stage activities 1. Agreeing the terms of audit engagements 2. Quality control for an audit of financial statements
Planning stage activities Planning an audit of financial statements Identifying and assessing the risks of material misstatement- through understanding the entity and its environment Materiality in planning and performing an audit
Three words that difine the audit plan Nature, timing and extent
Responding to risk stage/activities include The auditors responses to assessed risks Audit Evidence Audit Sampling
The preconditions for an audit are that The financial reporting framework to be applied in the preparation of the F/S to be audited is acceptable. The auditor obtains the agreement of management, that management acknowledges and understands its responsibility:
Reasons that an audit firm may not wish to enter into a relationship with a prospective client -Client’s management appear to lack integrity - Auditors may not want to be associated with the “industry”... - The client may have a reputation for poor relationships with its auditors - The audit firm may lack the competence and resources
Procedures to gather “preliminary engagement” information Communication with the previous auditor Discussion with those charge with governance Inquiry of the firm’s bankers
Created by: DCFEZ