...Steps In Auditing Advanced Auditing 606M Jeremy Borden The purpose of this paper is to explain the purpose, goal, and/or outcome of each step in the audit process. The steps included in these pages are essential when conducting any audit of any company. Although specific audit procedures are different from one engagement to the next, the following steps are involved in every engagement. The first step in the audit process for any engagement is to make contact with the potential client. The goal of this step is to obtain new audit business. This is often times is done through the submittal of a general proposal that includes details on the nature of services provided, the qualifications of the firm’s auditors, anticipated fees, and other pertinent information to persuade the client to choose the firm. If the potential client is a publicly held company, arrangements for the audit are made through the audit committee. The proposal and oral presentations are made to provide a basis for selection. If the potential client is a private company, a partnership, or a smaller company, arrangements are made through the owners, a partner, or an executive of the company. This initial contact will often lead to oral discussions, negotiations, and other fact-finding topics before a final formal proposal is written and the audit is accepted. The proposal will also include a mention of contacting the previous auditor of the potential client. This is important because the potential...
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...Head: THE PROCESS AND PREVENTING THE RISK OF A TAX AUDIT 1 The Process and Preventing the Risk of a Tax Audit By Marivic Engquist National American University August 12, 2012 THE PROCESS AND PREVENTING THE RISK OF A TAX AUDIT 2 Abstract This paper illustrates how an Internal Revenue Service (IRS) audit strikes fears in individuals, small businesses and large corporations. By understanding the process of a tax audit and reporting information that is understandable, people can lesson some of the risk. According to Sidney Weisman, an attorney and senior editor with the Research Institute of America, publisher of tax materials for professionals, “the easiest way to survive a tax examination is to prepare for one at the time you fill out the tax return” (Rankin, 1981, p. 2.29). THE PROCESS AND PREVENTING THE RISK OF A TAX AUDIT 3 The Process of Lessoning the Risk of a Tax Audit The tax audit have been feared by many and embraced by the few. Even though there are ways to reduce the likelihood of an audit, one must understand how the audit process works. If selected, a tax audit usually means corresponding with the IRS, searching through files, and producing records. It can also mean paying additional taxes, interest, or a penalty. Reducing the likelihood of an audit, all income...
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...Engagement Letter, Checklist, and Timeframes Engagement Letter, Checklist, and Timeframes October 29, 2012 Eric Unum Vice-President-Finance Apollo Shoes Inc. 100 Shoe Plaza Shoetown, ME 00001 Dear Sir, This letter is to confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide on the Apollo Shoes Company internal audit services. The objective of our audit is the expression of an opinion whether your financial statements are fairly and materially presented. Our audit will aligned with auditing standards GAAP and will include tests of your accounting records and other procedures we consider necessary to enable us to express such an opinion. If our opinion anything but unqualified, we will discuss this with you before issuance of the opinion. If, we are unable to complete the audit or are not able to form an opinion, we may not express an opinion or we may issue a report pursuant to this engagement. Our procedures will include tests of documents and evidence in support of the transactions in the accounts, tests of the physical inventories, and direct confirmation of certain receivables and payables via correspondence with selected random customers, vendors, creditors, and other financial institutions. At the end of our audit, we will need some written documentation from you about the financial statements and related matters. Our audit will involve our decision regarding the amount...
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...Practices Board. Its responsibilities are set up standards and guidance for auditing work. According to this standard, APB tries to enhance confidence on auditing process for public. ESs includes five requirements that auditors must adhere to and its primary objective is to give ‘true and fair’ opinions on financial statement. The credibility of audit opinions depends on the integrity, objectivity and independence of the auditor. Accordingly, it requires the quality of audit more stringent, especially the independence of auditors’ assurance. ES2 illustrates the guidance on some particular circumstances, which may generate threats to the independence and objectivity of auditors. ES3 states that senior positions have collaborated with audit engagement for a continuous period should be rotating. ES4 explains that there is no relationship between audit opinion and audit fees or other remuneration. ES5 shows that audit firm should consider whether non-audit service have significant effect on the threats to the auditor’s objectivity or independence. International Standards on Auditing ISA (FRS, 2009) copes with independent auditor’s overall responsibilities when implementing auditing process. These professional standards establish objectives of independent auditors together with explain the scope and nature of auditing process, which is designed to enable auditors to achieve the objectives. These standards aim at setting out essential procedures and principles that auditors should...
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...Internal Audit of Al Fresco Audit Program Objective: To find out whether their financial information is free from irregularities. Audit Steps to Be Completed I. Planning and Administration Section 1. Prepare permission letter and engagement letter, and obtain approval from the audit director and the auditee. 2. Conduct audit planning, and the following should be discussed: * Timing of audit and planned participants * Timing of fieldwork * Internal control checklist * Risk areas/ internal controls * Assignment of audit objectives * Testing to be performed * Budgeted hours * Permission letter * Engagement letter 3. Conduct pre-audit interview with auditee and document discussions held. 4. Set the schedule of the preliminary audit with the applicable management and discuss the following: * Timing of the audit * Audit objectives * Key contacts for the audit 5. Obtain permission to access relevant information like: * Organizational chart * Relevant reports utilized by the auditee * Strategic documents 6. Prepare and review the internal control questionnaire: * What is the Al Fresco’s perceived internal controls strengths and weaknesses? 7. Inquire of the auditee as to whether any relevant process flowcharts exist. If not, consider developing one for the permanent file. II. Fieldwork First Objective: To ascertain whether the use and recording of petty cash funds...
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...1) What are the steps of auditing process? Briefly describe each one of them. 1. Pre-engagement Activities Pre- engagement activities are the processes of determining risks, choosing the best team for the engaged firm and agreeing on the terms of engagement which includes the engagement letter. 2. Preliminary Planning Preliminary planning is analyzing the internal and external factors that might have an effect on the entity’s financial status. In this step, the chosen audit team gets familiar to the entity’s application systems understands the accounting process. This step, is the start of analytical procedures. 3. Develop Audit Plan Developing an audit plan consists of 5 main steps. First one is assesing the potential error level and risks. Second step is deciding on the audit approach. Third step is controlling; in this step potential errors are tested such as cutoff, valuation, completeness. Tn fourth step, substantive tests are planned. In the last step, all of the steps above are summarized and submitted to the entity. 4. Perform Audit Plan In this process, auditor performs the plans which are made in the previous step. The auditor checks the effectiveness of the audit plan. Then, substantive analytical procedures goes on. The auditor identfies the account balance and errors to be tested. An expectation of the entity’s substances are developped. The properties which requires a further imnvestigation are identified. Briefly, further...
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...CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks and Responding Brief Topical Outline A. The audit process 1. Obtaining clients (PowerPoint 6-2) — Submit a proposal — communicate with predecessor auditors 2. Overall process (PowerPoint 6-3,4) B. Audit planning (PowerPoint 6-5) 1. Establish an understanding with client, ordinarily through use of an engagement letter (PowerPoints 6-6, and 6-7) 2. Overall on audit planning (PowerPoint 6-8) C. Obtain an understanding of the client and its environment 1. Risk assessment procedures (PowerPoint 6-9) 2. Business risk approach to the audit (PowerPoint 6-10 through 6-16) 3. Materiality D. Assess the risks of material misstatement and design further audit procedures 1. Overall approach (PowerPoint 6-17) 2. Assessing fraud risks (PowerPoints 6-18 through 6-21) 3 Design further audit procedures (PowerPoints 6-22 and 6-23) E. Organization of the audit program 1. The systems portion 2. The substantive test portion (PowerPoint 6-24) 3. Analyzing transactions affecting accounts (PowerPoint 6-25) 4. Indirect verification of income statement accounts (PowerPoint 6-26) 5. Assertions, objectives and procedures (PowerPoint 6-27) — Management assertions — Direction of audit testing (PowerPoint 6-28) — Substantive objectives for the audit of asset accounts ...
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...I will be working with you throughout the process of our engagement. I would also like to take this opportunity to highlight some details for you to make the audit process a smooth one. First, you can expect an engagement letter from us within the next 5 days from the date of this letter. The engagement letter will outline our agreement to the type of audit you have selected and what our role and responsibilities will be in performing the audit as well as your own. The engagement letter is more than a letter, it also a contract that outlines the limits of the audit as well as details the scope of services we will provide based on your selection, our fees and billing, how and what communication is needed between our firm and you, and if a dispute arises how we hope to resolve that. I recommend carefully reviewing the engagement letter and discussing it with legal counsel before signing the engagement letter. After reviewing and signing the engagement, please provide a signed copy to our firm so we can begin the audit and ensure deadlines are met. Once receiving the signed engagement letter, our office will call to set up a time for me to tour your facilities so that I may use this information in planning your audit and tailor our services precisely to Apollo Shoes, Inc. Additionally, I will need access to all company files during the audit, as well as a list of related parties and subsidiary companies to make sure our audit is as accurate as possible. I...
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...What Is an Audit Engagement? When a company has to go through the audit process, an auditor may use the term "audit engagement." This can mean different things, so it is important that the auditor clarify what he means when he uses the term. Regardless of which definition the auditor follows, however, the auditor always follows specific procedures and guidelines for handling the engagement. Audit Engagement Letters Auditors generally provide audit engagement letters as one of the final steps in the audit planning stage. The letter summarizes all the information the auditor has gained about the client, the client needs and audit objectives, as well as the scope of the audit and what the client is responsible for doing. Additionally, audit engagement letters clearly indicate the auditor assigned to the audit. They also may indicate additional information the auditor will need during the audit, the auditor's fees, people with whom the auditor will need to speak and how much time the auditor has to finish his work. Also sometimes included are relevant financial and accounting regulations to which the auditors must adhere. A good audit engagement letter also recognizes that not all clients are familiar with audit procedures and therefore outlines those procedures for clarification. Audit engagement letters are very similar to work contracts in the way they are constructed in that they define duties and relationships, but based on their wording, they are not necessarily legally binding...
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...mutually incongruent goals. I appreciate your interest in Anderson, Olds, and Watershed (AOW) and want to explain some of the many audit and assurance services that my firm has to offer. As a publicly traded company, the Securities and Exchange Commission (SEC) requires Apollo Shoes to submit audited financial statements as part of its annual 10-K filing. The Sarbanes-Oxley Act of 2002 also requires auditors to attest to the effectiveness of internal controls in the financial reporting process. My firm has years of experience in supporting organizations with these requirements. Not only is an independent audit of financial statements required by law, but it can also serve to provide external stakeholders with assurance that your financial statements are fairly presented in accordance with generally accepted accounting principles (GAAP). These stakeholders, including banks, investors, and other creditors, rely on this assurance to assess the amount of risk involved in investing in your business. Often, a set of audited financial statements can help increase investment in an organization and decrease its cost of capital. Furthermore, an audit of a firm’s financial statements can help to identify fraudulent activity within the organization. In addition to an audit of financial statements, AOW has experience in conducting audits and reviews of historical financial statements. A review of historical financial statements...
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...Audit Program Design Part I ACC/546 Auditing Monday, July 14, 2014 Anderson, Olds and Watershed (AOW) 1 Fraud Free Way Shoetown, ME 00001 July 25, 2014 Mr. Larry Lancaster Chairman, President, and Chief Executive Officer Apollo Shoes, Inc. 100 Shoe Plaza Shoetown, ME 00001 Dear Mr. Lancaster: This letter will confirm our understanding of the arrangement for our engagement of an independent audit of the internal controls of Apollo Shoes, Inc. This letter will outline the nature and limitations of the services we will provide. Anderson, Olds, and Watershed will provide consultation to Apollo Shoes Inc. about the internal control requirements of the 2002 Sarbanes-Oxley Act (SOX) Section 404 and test the internal controls to identify any significant deficiencies and/or material weaknesses. Statement on Auditing Standards (SAS) 115 states that these are matters that warrant the attention of management, our purpose is to provide our opinion and recommendation. At the conclusions of the engagement we will provide to Management and the Audit Committee a detailed report, including an executive summary, of all findings and recommendations. The purpose of this engagement letter is to define the terms of contract between Anderson, Olds, and Watershed and Apollo Shoes, Inc. and to identify the assurance services to be provided. This letter will also provide background information on the following conditions: * Significant regulations and guidelines related to audits...
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...GENERAL AUDIT PROCEDURES AND DOCUMENTATION 1. When does the audit process begin?The audit process commences with the issuance of a Letter of Authority to a taxpayer who has been selected for audit. 2. What is a Letter of Authority? The Letter of Authority is an official document that empowers a Revenue Officer to examine and scrutinize a Taxpayer’s books of accounts and other accounting records, in order to determine the Taxpayer’s correct internal revenue tax liabilities. 3. Who issues the Letter of Authority? Letter of Authority, for audit/investigation of taxpayers under the jurisdiction of National Office, shall be issued and approved by the Commissioner of Internal Revenue, while, for taxpayers under the jurisdiction of Regional Offices, it shall be issued by the Regional Director. 4. When must a Letter of Authority be served? A Letter of Authority must be served to the concerned Taxpayer within thirty (30) days from its date of issuance, otherwise, it shall become null and void. The Taxpayer shall then have the right to refuse the service of this LA, unless the LA is revalidated. 5. How often can a Letter of Authority be revalidated? A Letter of Authority is revalidated through the issuance of a new LA. However, a Letter of Authority can be revalidated— Only once, for LAs issued in the Revenue Regional Offices or the Revenue District Offices; or Twice, in the case of LAs issued by the National Office. Any suspended LA(s) must be attached to the new LA issued (RMO...
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...INTRODUCTION A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurance that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation. Financial audits are typically performed by firms of practising accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms. Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors. Internationally, the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) is considered as the benchmark for audit process. Almost all jurisdictions require auditors...
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...Advanced External Auditing [AU2] Examination Blueprint 2013/2014 Purpose The Advanced External Auditing [AU2] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives and competencies. The learning objectives have been designed to ensure that the competencies are met. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Candidates should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course materials; however, candidates are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide candidates with a greater depth of understanding of auditing concepts. Examination Objectives The objective of the 4-hour comprehensive examination is to test CGA candidates on the prerequisite knowledge required for advancement into PA1 and PA2, so as to ensure that the candidates have the broad-based knowledge in assurance needed to function properly in the association’s...
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...Internal Audit Guidebook Providing a framework for understanding and delivering Grant Thornton’s Internal Audit Services in a consistent, high-quality way 2012 Internal audit guidebook 1 Contents Page Introduction 2 Common service delivery methodology 6 Determine client needs 8 Scope and arrange work 10 Plan 13 Analyze and assess 20 Report and recommend 28 Implement 32 Evaluate 33 Determine business and technology context 36 Manage engagement performance, quality and risk 38 Communicate and enable change 40 Appendix 42 Internal audit engagement checklist 43 © Grant Thornton LLP. All rights reserved. Updated August 1, 2012 Internal audit guidebook 2 Introduction What is internal audit? The Institute of Internal Auditors (IIA) defines internal auditing as: Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. (1010) An internal audit objectively assesses the management of risks that a company faces. (2100 series) The aim is to • understand the current state, • assess the current state using appropriate standards and criteria, and • develop findings and recommendations...
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