- I could probably do better but hey this is what I got. Right now my brain is on fire but in a good way, this is one of those things looking back I will wonder if I really know like alot of what I do right now
Putting it all together: Audit planning
David Vaughn
Phoenix University
Fin/590
Patricia Schroeder
4/5/2021
Putting it all together: Audit planning
In the event that a person whether it is myself or another person who is considered an entity the auditor must or may go through a few different procedures to initialize and plan for an audit. Within in this there may be certain orders and functions that may effect you or myself that depend on your history of audits to your rights to the property that you claim. In this paper I will discuss the steps of the audit and how they should be completed.
First steps of the audit and planning
From p.78 (Audit & Assurance services) we can see that the nature, timing, and extent of the audit procedures will depict the details of the audit. Using Microsoft’s audit as a form of a finished audit. The following statements will detailed what of the following steps could have been performed based upon the audit type. I decided to use the book example of Applying Materiality to an Audit along with saying it was financial statement audit. This is done to simplify the subject or correlate that the data had already been viewed. Thus, noting that in a previous report that I looked over the ideas of a compliance, operation, and financial statement audits. Furthermore, it explains that the process of using the proper techniques to perform the audit requires a certain level of judgement or expertise. So, I will use Microsoft’s finished audit of 2013 as a way to exemplify the books example of Applying Materiality to an Audit. Without showing the information can I say that to devise a plan (A) I would first need to discuss the size of the team because of the size of the company and the revenue streams. Secondly (B) to make this a thorough audit I would probably want to look at doing a operational audit to coincide with the proposed financial statement audit. Including doing a walkthrough to possibly get a feel of how the companies assets may be or any possible risk of misstatements. Finally with all of that done (C) the actual audit would be supervised by an accountant familiar to how the company operates. Following with these steps:
- Step (1): Determine overall materiality – Summarizing what can be found on P.86 (Auditing & Assurance Services), says that depending upon the amount of cash and the size of the company means the likely hood of revenue streams are to be examined when considering the large size of a company making small amounts of cash that could be considered immaterial ($400 or $4000) in comparison to a small company that creates a similar amount. A misstatement or fraud could be determined by examining percentages relevant to the balance or statements benchmarks. When deciding how to benchmark the statements an auditor may use (A) high risk of fraud or (b) any prior misstatements. * There could be other factors to consider*
- Step (2): Determine tolerable misstatement – Beginning with the idea that the auditor may use a predetermined percentage of acceptable tolerance for how much the entity may have misstated. In this case the text book says 50% to 75% is within tolerable range. This means that in my words “the materiality must be close to accurate while not being exact. Their risk of fraud being present with some transactions or revenue streams must be examined for certain balances. Such as Microsoft’s (Tools & Support balance) example would be loss of revenue or to be sure of the actual balance I would look over account paid or received along with any other relevant transaction be scrutinized.” Having a proper benchmark to account for any changes in revenue would be key in this scenario. Especially after a large acquisition during and after the audit period, what may be considered a dual date.
- Step (3): Evaluate Audit findings – As I stated previously there are different types of audits and that includes procedures or how they are performed. Example would be a Management audit to discuss the internal operations of a client/entity. In this case it would be fair to say that Microsoft’s community support currently may not have had a significant impact on the financial statements. Prior statements may represent a different number causing for additional procedures to be performed. This also could include testing of controls used to perform this audit. In this case it would be Information and communication as a way to reperform the task and check the internal control of the audit.
Conclusion
A difficult subject to fully master, with many of the terms not being loose but could seem to be ambiguous. Example like step (2) deciding on a acceptable tolerance level using 50% or .50 for a figure such as $10000*.5 = $5000 could mean that as a sole proprietor of a small company there could misstatements. Even though in a year I could spend somewhere within the range. Does that mean that I should feel that I have been a victim of fraud? No not if I were to examine the exact expenses. So, in conclusion using due care as an auditor means taking the time to apply the knowledge you have to properly explain the finances of the client. Giving them qualified opinions about their balance statements is how one may apply an audit.