Audit Engagement Essentials and Strategies

School: La Trobe University - Course: ECO 5POE - Subject: Accounting

Name: Mai Khanh Tran Phan 134602 Workshop 4 1.Five mandatory items that must be included in an audit engagement letter (ISA 210) -The objectives and scope of the audit: for example, for a financial statement audit, the objective is to express an opinion on the financial statements. -The responsibilities of the auditor: For a financial statement audit, one responsibility is that the auditor conducts the audit in accordance with GAAS -The responsibilities of management: The FSs and the proper application of generally accepted accounting principles are the responsibility of management, -The identification of the applicable financial reporting framework -Reference to the expected form and content of any reports to be issued According to APES 305, engagement documents should include: -purpose of the engagement -objectives of the engagement -scope of the engagement -engagement output -relative responsibilities of the member, the client and any third parties -involvement of other members in public practice -fees and billing arrangements -ownership of documents -confirmation by the client that the terms of the engagement document are understood. 2.Four planning activities outlined in ASA 300 (ISA 300) that the auditor needs to consider prior to the performance of detailed audit procedures: -Prepare audit planning -Understand the business structure, environment, -The performance of risk assessment procedures 3. The auditor needs to understand the client's business because it helps the auditor in: -Recognising errors in the FS -Determine materiality -Consider the appropriate accounting policies and disclosures -Identify areas requiring special audit consideration -develop expectations for use when performing analytical procedures -Design audit procedures in response to assess risks of material misstatement -Evaluate audit evidence Besides, the nature of the business and industry affect business risk and the risk of material misstatements in the financial statements. Auditors use the knowledge of these risks to determine the appropriate extent of further audit procedures 4.The importance of the audit strategy

By developing an audit strategy, it is easier to create a more targeted audit plan so the auditors waste less time in total during the planning phase of an audit. Audit strategy is very important for the success of audit engagement because it is the way which auditors understand and set audit scope, the timing of audit engagement, and set out the strategy on directing audit engagement, and develop an audit plan. 5.The purpose of an audit program is to create a framework that is detailed enough for outside auditor to understand what official examinations have been completed, what conclusions have been reached and what the reasoning is behind each conclusion. And audit program helps the auditor to manage and control the audit The audit framework should explain the audit's objective, its scope and its timeline. The audit program should also describe how working papers- the documented evidence of the audit will be collected, reviewed and reported. A well-prepared audit program should provide: - evidence of proper planning of work - guidance to inexperienced staff - evidence of work performed - a means of controlling time spent on the engagement - evidence of consideration of internal control in relation to proposed audit procedures.