Auditing: Client Acceptance, Audit Planning, Preliminary Risk Assessment

Running head: AUDITING
Auditing
Name of the student
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1AUDITING
Table of Contents
Question 1..................................................................................................................................2
(a) Client acceptance decision..........................................................................................2
(b) Audit planning.............................................................................................................3
(c) Preliminary risk assessment........................................................................................4
(d) Preliminary materiality calculation.............................................................................4
Question 2..................................................................................................................................5
Question 3..................................................................................................................................7
Reference..................................................................................................................................10
Appendix..................................................................................................................................12

2AUDITING
Question 1
(a) Client acceptance decision
Accepting the client engagement involves following procedures regarding whether to accept
the engagement or not –
 Evaluating the management’s integrity – irregularities and material error as well as
fraud is more likely when the management is not honest. Hence, the auditor shall
analyse the previous year’s financial records, minutes of meeting and other documents
related to business operation to assess whether they indicate any misstatement or
fraud (Lai and Chen 2015)
 Recognising unusual risks and special circumstances – in this step the auditor shall
focus on identification of intended errors related to financial statements. Legal
liability of the auditor may differ based on the intended users of statements,
particularly under the negligence of common law
 Assessing the competence to perform audit – it is crucial that which personnel will be
assigned for the audit. Answer to this will help to determine type and amount of
supervision required. Nature of the client and its business will have large impact on
staffing decision (Hsieh and Lin 2015)
 Evaluation of independence – the auditor shall evaluate whether they will be able to
work in independent environment
 Determination of auditor’s ability to apply due care – earlier appointment provides
more time for planning and business risk may enhances if the engagement is made
after or near closure of fiscal year (Hsieh and Lin 2015)

3AUDITING
(b) Audit planning
Nature and extent of audit planning is direct function that is dependent upon the
complexity and size of the client’s business. Audit planning involves the following steps –
 Obtaining understanding of client’s business and the industry – key aspects to be
focussed under this are –
 Objectives and goals of management
 Regulatory forces
 Services, products, customers, competition and market
 Operating cycle and core processing
 Financing and operating cycle
 Reviewing the audit documentation from the previous audit performed by accounting
firm or the predecessor auditor that will assist in development of outline for audit
program (Coetzee and Lubbe 2014)
 Timing for various audits shall be considered. For instance, testing for internal
control shall be performed in early days of the engagement, controls regarding
inventory shall be performed near or at the data of balance sheet
 Interim financial statements shall be analysed for identify the transactions and
accounts that varies from the expectation. Performing such analytical process is
compulsory in audit planning for identifying accounts that is misleading and require
special attention
 Assistance from outside shall be determined that includes use of specialists as and
when required (Christensen et al. 2016).