bsmauditwkngpprs - materiality

7/31/2019 Bsmauditwkngpprs - Materiality

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Auditing LovittsBoon Sim Murray Standard Audit Working Papers

WP

CODE

WP NAME COMMENT

PLANNING

PL1-RMR Risks of materialmisstatement and auditresponses

Comprises descriptions of theprocess and any revisions;attach minutes of teammeetings

PL2-UCB Understanding of theclients business

PL3-ARP Analytical reviewprocedures for audit

planning

Attach data tables andcalculations, including

annualisation of current partyear dataPL4-PME Preliminary materiality

estimation and allocationPL5-CEE Control environment

evaluationFirst part of internal controlstructure

PL6-RAM Risk assessment andmonitoring

Further analysis of internalcontrol structure

PL7-UIS Understanding of theinformation systems

Summary of clientsapplications

PL8-SAS-x Summary of application

system

Summary flowchart for each

system supported by furtherexplanation as needed for theaudit response

PL9-IEA IT environment appreciation Preliminary investigation of ITgeneral controls

PL10-GAS General audit strategy

PL11-ITA Instructions to IT Audit Memorandum containinginstructions if furtherevaluation of IT controls isneeded for audit response

PL-TCR-x-y- Transaction class riskassessment

PL-TCT-x-y Transaction class testing

PL-ART-x-z Account balance riskassessment and testing

TESTING

TE-ATP-x Audit test programme

REPORTING

RP1-MRM Matters to report to

management


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For x above, substitute letters for appropriate cycle where transaction cycleaudit approach is adopted: Rev for revenue, Inv for inventory, Exp forexpenditure, Int for investments, Cap for capital expenditure. For y above,substitute letters for transaction class: CrS for Credit Sales Invoices, CaS forCash Sales Invoices, CrN for Credit Notes (for returns from debtors), CaR forCash Receipts; PrI for Purchase Invoices, DeN for Debit Notes (for returnsto suppliers), PaS for Payments to Suppliers, HuI (for Human resourceinputs (i.e., hours worked, leave taken, etc.)). For z above, substitute letterfor account balance: AcR for Accounts Receivable, AcP for AccountsPayable, ClI for Closing Inventory, CaD for Cash, Bank Balances andDeposits, HuL for Human resource liabilities (deducted tax, superannuation,etc.), ShE for Shareholders Equity.


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PL1-RMR:Client

Audit for year ending

Risks of material misstatement and audit responses(Summary of audit risk assessment process and conclusions)

FACTOR COMMENTS

Process inassessment ofrisk of materialmisstatementthrough fraudor error

Audit teammeeting heldto discuss riskof materialmisstatement

Revision ofrisk assess-ments

Summary of

final auditstrategy

Prepared by/Date Signature Reviewed by/Date Signature


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PL2-UCB:Client


Understanding of the clients business

FACTOR COMMENTS

Explain relevantindustry, regulatoryand other externalfactors, including theapplicable financialframework

Explain nature ofentity:

operations

ownership andgovernance

investmentsmade or planned

structure

financing

Explain and evaluatemanagements selec-tion and application ofaccounting policies

Summarise entitys

objectives andstrategies and relatedbusiness risks thatmay result in materialmisstatement of thefinancial report

Evaluate theprocesses formeasurement andreview of the clientsfinancial perfor-mance, including their

implications for risk ofmaterial misstate-ment

Implications for thecurrent years audit



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PL3-ARP:Client


Analytical review procedures for audit planning

FACTOR COMMENTS

Discussionof analysis

Implicationsfor the audit



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PL4-PME:Client


Preliminary materiality estimation and allocation

FACTOR COMMENTS

Discussion ofsource of data

Operatingprofit basemethod

Judgement from profit base method $

Blendedmethod

0.5% of assets ($ )0.5% of revenue ($ )5% of profit before tax ($ )2% of gross profit after depreciation ($ )1% of equity ($ )

Total

Average /5

Judgement from blended method $

Planningmaterialityconclusion

$

Allocation ofplanningmateriality tocomponents

discussion

allocation

Revenue/accounts receivableExpenditure/accounts payableCost of sales/inventoryNon-current assets (tangible)Non-current assets (intangible)Cash/deposits etc

TOTAL $



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PL5-CEE:Client


Control environment evaluation

FACTOR COMMENTS

Communication andenforcement ofintegrity and ethicalvalues - means

Commitment tocompetence recognition of skillrequirements for jobsand implementation

Participation by thosecharged withgovernance (e.g.,activities of auditcommittee)

Managementsphilosophy andoperating style (inclu-ding interest inaccounting)

Organisationalstructure (e.g.,structure forachievement ofentitys objectives)

Assignment ofauthority andresponsibilities

Human resourcepolicies and practices recruitment,training, evaluating,compensation, etc

Conclusion (e.g.,potential for materialmisstatement)



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PL6-RAM:Client


Risk assessment and monitoring

FACTOR COMMENTS

Explain managementsprocess for identifyingbusiness risks and takingaction to address thoserisks(NB: Circumstances giving rise torisks include:

Changes in operating

environment

New personnel

New or revampedinformation systems

Rapid growth

New technology

New business models,products or activities

Corporate restructurings

Expanded foreignoperations

New accountingpronouncements)

Explain how the entity:

monitors internalcontrol over financialreporting

takes correctiveaction

Evaluate the effectivenessof the risk assessment and

monitoring processes andcomment on implicationsfor the current years audit



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PL7-UIS:Client


Understanding of the information systems

FACTOR COMMENTS

Summarise theentitys informationsystems, includingrelated businessprocesses, relevant tofinancial reporting:

Relevantclasses oftransactions

Processingand reportingprocedures

Accountingrecords

Capturingevents significantto the financialreport

Financialreporting process

Summarise the meansby which the entitycommunicatesfinancial reportingroles andresponsibilities andsignificant mattersrelating to financialreporting



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Cycle PL8-SAS-x

Client


Summary of application system

Databases

Processes

In-

puts

Out-

puts

Standing

data

changes

Various

performance

reports

Summary of programmed processes and controls:


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Summary of manual processes and controls

Preliminary assessment of the operating effectiveness of identified internal controls

TRANSACTION CLASS/

ACCOUNT BALANCE

ASSESSMENT OF INTERNAL CONTROLS FOR POSSIBLE AUDIT RELIANCE

Dependence of thecontrols on IT-generalcontrols

Potential for the use of computer assisted auditing techniques

TRANSACTION CLASS/ACCOUNT BALANCE

POSSIBLE USES



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PL9-IEA:Client

Audit for the year ending

IT environment appreciation(To be prepared by IT Audit specialist if clients system is multi-user)

FACTOR COMMENTS

Explain governance andmanagement of IT function

Summarise segregation offunctions within computerdepartment, referring toorganisational chart

Summarise computerdepartment physical controls(access, climate, etc.)

Summarise logical accesscontrols and monitoringthrough automated logs

Summarise control over datacentre and network operations(backup, monitoring, etc)

Summarise system software

acquisition, change andmaintenance

Summarise controls overapplication system acquisi-tion, development andmaintenance, includingprogram change controls

Summarise current or plannedprojects, including in-houseand outsourced developments

Explain extent and apparenteffectiveness of qualityassurance and/or IT audit

Comment on potential for useof computer assisted auditingtechniques



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PL10-GAS:Client


General audit strategy

COMPONENT STRATEGY

GENERAL Risks of material misstatement at the financial report level

Overall audit responses to address these risks

Revenue

Inventory

Expenditure

Non-Current

Assets

Liquid Assets(Cash, Deposits)

Investments

Loans

Equity


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Cycle PL-TCR-x-y

Client


Transaction class risk assessmentTransaction classAssertions/Possible material

misstatements

Controls to prevent or detect themisstatements - complete thiscolumn only if assessmentincludes expectation ofeffectiveness of controls)

Risk of material misstatement -give level (significant, audit-critical, high, medium,low) and comment

Occurrence

O1O2

Completeness

C1C2

Accuracy/Classification

A1A2

Presentation/Disclosure

P1



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Cycle PL-TCT-x-y

Client


Transaction class testingTransaction classAssertions Proposed control tests if

applicable(cross reference to controls)

Proposed substantive tests (analyticalreview procedures and tests ofdetails)

Occurrence OC1 Analytical proceduresOS1

Tests of details

OS2

Completeness CC1 Analytical proceduresCS1

Tests of details

CS2

Accuracy/Classification

AC1 Analytical proceduresAS1

Tests of detailsAS2


PC1 Tests of detailsP1



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Cycle PL-ART-x-z

Client


Account balance risk assessment and testingAccount balanceAssertions/Possible material

misstatements

Assessed risk of materialmisstatements after takinginto account transactionclass controls

Proposed substantive tests (analyticalreview procedures and tests of details)

Existence

Analytical procedures

ES1

Tests of details

ES2

Completeness


CS1

Tests of details

CS2

Rights/Obligations


RS1

Tests of details

RS2

Valuation/Allocation


VS1

Tests of details

VS2


Tests of details

PS1



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TE-ATP-x

Client


Audit test programme

Audit TestsRiskassessmentreferences

Samplesize (ifapplicable)

Workingpaperreferences

Done by



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RP1-MRM:

Client


Matters to report to management

W/PREFERENCE

EXPLANATION

Evaluation


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