1 Engagement letter (Auditor/client contract)
1.1 Content
- Objective and Scope
- Responsibilities (Auditors/management)
- FS framework
- Reports
1.2 Requirements (Function)
- Minimize the possibility of misunderstanding between clients and auditors, eliminate expectation gap
- Provide written confirmation
- Reviewed every year but no need to reissued unless there're changes
2 Audit Planning
进行审计计划的原因
To ensure
- Appropriate attention is devoted to important areas of the audit
- Potential problems are identified and resolved on a timely basis
- The engagement is properly organized and managed to be performed in an effective and efficient manner
- Proper assignment of work to engagement team members
- Direction, supervision and review of team members
- Co-ordination of work done by auditors and experts
2.1 ISA 300 (Audit strategy and Audit plan)
ISA300
2.1.1 Audit strategy
- Interim/Final
- Substantive/Control
- Analytical review/Test of control
2.1.2 Audit plan
- Assess risk
- Assess materiality
- What evidence do we need?
- Design procedures to get it
2.2 ISA 315 (Risk and Understanding)
ISA315
2.2.1 Audit risk
2.2.1.1 Identification
- Objective
Plan and perform the audit to reduce audit risk to an acceptable low level - Category of audit risk
Audit risk / Risk of material misstatement / Inherent risk / Control risk / Detection risk
2.2.1.2 Assessment
- Materiality
An expression of the relative significance or importance of a particular matter in the context of FS as a whole.- Nature (related party transactions)
- Impact （扭亏为盈）
- Value
- 1/2~1% of revenue
- 5~10% of profit before tax
- 1~2% of gross assets
Performance materiality (实际执行的重要性水平), as 75% of materiality level
-
Importance of risk assessment
风险评估的重要性
2.2.1.2 Response (ISA 330)
ISA330
审计流程
2.2.2 Business risk
A risk resulting from significant conditions, events, circumstance, actions or inactions with could adversely affect an entity's ability to achieve its objectives and execute its strategies, or from the setting for inappropriate objectives and strategies.
-
Category of audit risk (CFO)
- Compliance risk
- Financial risk
- Operational risk
-
Tools to identify
- SWOT analysis
- The five force model
- The PESTEL analysis
- Porter's value chain
经营风险和审计风险的联系
企业的所有活动都有financial effect，就有交易被错报的风险，体现在固有风险和控制风险
3 Audit methodologies
- Risk-based audit
- 'Top-down' approach (a.k.a. business risk approach, more controls testing at high level controls and less substantive testing)
- Macro-environment (PESTEL)
- Industry (Porter's five force)
- Micro-environment ➡️ Company
