Auditing and Professional Practice Planning Implies

Question: Describe about the Auditing and Professional Practice for Planning Implies. Answer: Case Study 1(a) Audit planning implies preparing a road map to achieve the audit objectives. The auditor needs to plan for the resources needed for auditing, timing of verification and extent of verification of the financial statements. As per auditing standard 2101, Audit Planning, while planning an audit, the auditor should take into account all the facts and circumstances giving rise to suspicion or reflecting risky situations (PCAOB, 2016). In regard to the current case of City Ltd, the main audit planning issues are identified as under: The business risk is very high as is reflected from the fact that commercial property sector is on downturn due to governmental regulations in the city. Further, the company has not been able to secure any buyer for the projects under process, which gives rise to significant doubt on the companys ability to continue its business (PCAOB, 2016). The business of company is in critical condition and thus, there exists a possibility of manipulations in the books of accounts. The circumstances of the case also warrant that the auditor evaluates legitimacy of the managements use of going concern assumption in preparation of the financial statements (PCAOB, 2016). Case Study 1(b) In the current case of Web Ltd, installation of the new computer software adds to the IT capabilities of the company and requires following audit planning considerations: The auditor needs to take into account the change in the information system of the company occurred due to installation of the new computer software. The internal processes of accounting system would have also got changed due to new information system being installed, thus, auditor should consider a thorough evaluation of the internal control system of the company (Omoteso, 2016). Highly customized computer software also gives rise to the risk of manipulations in the financial statements, thus, the auditor should make a fresh evaluation of the risk of material misstatement (Omoteso, 2016). Case Study 1(c) In this case of Beauty Pty Ltd, the event requiring attention of the auditor while planning the audit is the establishment of a foreign branch. The following audit planning considerations are required: Firstly, the auditor is required to assess the materiality of the foreign operations in the context of overall audit of Beauty Pty Ltd. Second, the auditor should consider employing serious checks on the internal control system in respect of inventory because the inventory is transferred from domestic unit (Pickett, 2006). The auditor should plan the resources needed to verify the book records and assets kept at the foreign branch, if foreign branch is considered material in the context of overall audit. Further, the auditor should take into consideration while planning, the aspects of financial reporting relating to consolidation of the foreign branch operations with the domestic operations in the book records (Pickett, 2006). Case Study 2(a) The test of controls is employed to assess the adequacy of the internal control system while the substantive test is performed to collect persuasive audit evidence. In this regard, following are the general issues encountered in deciding the use of test of control or substantive test: The objective of auditor is the main issue. If the auditor wants assurance in regard to the adequacy of the internal control system, the test of controls will be suitable to employ. However, if the auditor wants corroborative evidences to confirm an amount disclosed in the financial statements, the substantive testing would be more appropriate (Delaney Whittington, 2010). Further, the assessment of risk at the initial level also affects the choice between test of controls and sustentative testing. Case Study 2(b) The inherent and control risk relates to the risk of inadequacies in the internal control system of the entity while the detection risk relates to the auditors verification. The auditor makes initial assessment of the inherent and control risk and based on this assessment, the extent of verification (substantive testing) is determined. At the initial level, if the auditor assesses the inherent and control risk as high, the extent of substantive testing is enhanced to reduce the detection risk. The detection risk is reduced if the auditor collects sufficient audit evidences by performing substantive testing. Thus, in this way the assessment of risk (inherent and control) is related to the choice of audit approach (Delaney Whittington, 2010). Case Study 2(c) In respect of accuracy and completeness of depreciation expense, the inherent and control risk is assessed as low. Further, the auditor plans to employ tests of controls in a stringent way to keep the inherent and control risk low as assessed with few substantive procedures at the yearend (Gray Manson, 2007). In regard to accuracy of the depreciation expense, following audit procedures are preferred: Check the accounting system and level of automation. Check the education level and skills of the staff responsible to process the accounting records. Perform recalculations on test check basis. Further, in regard to completeness assertion of the depreciation expense, following audit procedures are suggested: Perform test of control on the authorization of the purchase and sale of the fixed assets. Tests check the physical available assets with the book records. Case Study 3 The accounting information is communicated through the financial statements to the investors and other stakeholders. These financial statements are prepared by the management of the entity and are thus required to be authenticated by a third party to generate faith among the users (Kaklar, Kangarlouie, Motavassel, 2012). The process of verification and authentication of the financial statements is called auditing. Precisely, auditing is an examination conducted by an independent third party of the information conveyed by the entity through its financial statements. The information given in the financial statements is not only useful for the investors, but it also matters for the government and banks and financial institutions, which have lent money to the entity. The government requires information as regards profits earned by the entity so that tax could be levied appropriately. The lenders require information that assists them to take decision as regards lending to the entity. Since, the financial statements are prepared by the management of the entity and the investors do not take part in day to day management of the business affairs, thus, it is possible that information in the financial statements might have been manipulated for personal gains. In order to curve out these practices, the auditing of the financial statements has been made compulsory by the regulators all around the world (Kaklar, Kangarlouie, Motavassel, 2012). References Delaney, P.R. Whittington, O.R. (2010). Wiley CPA Exam Review 2011, Auditing and Attestation. John Wiley Sons. Gray, I. Manson, S. (2007). The Audit Process: Principles, Practice and Cases. Cengage Learning EMEA. Kaklar, H.M., Kangarlouie, S.J., Motavassel, M. (2012). Audit Quality and Financial Reporting Quality: Case of Tehran Stock Exchange (Tse). Innovative Journal of Business and Management, 1(3), pp. 43-47. Omoteso, K. (2016). Audit Effectiveness: Meeting the IT Challenge. Routledge. PCAOB. (2016). AS2101: Audit Planning. Retrieved November, 27, 2016, from https://pcaobus.org/Standards/Auditing/Pages/AS2101.aspx [Accessed on: 27 November 2016]. Pickett, K.H.S. (2006). Audit Planning: A Risk-Based Approach. John Wiley Sons.