(a) Components of audit risk.
Inherent risk: - This is the susceptibility of an assertion to a misstatement that could be
material, either individually or when aggregated with other misstatements.
Control risk;-This is the risk that a misstatement could occur in an assertion and that could be
material, either, individually or when aggregated with other misstatements, will not be prevented,
or detected and corrected by the enterprise internal controls
Detection risk: - This is the risk that the auditor will not detect a misstatement that exists in an
assertion that could be material, either individually or when aggregated with other misstatements
by the substantive analytical review procedures (ARP) performed.
(b) Objectives of audit planning:-
- To comply with Accounting Standards and Audit and Assurance Standards.
- To cover all types of-allied responsibilities during the audit such as tax audit reports
and secretarial audit
- To achieve effectiveness in reporting and more so to ensure that the audit will be
performed in an effective manner.
- To determine the nature, timing and extent of planned risk assessment procedures.
- To determine the nature, timing and extent of planned further audit procedures at the
assertion level.
- To plan for proper completion of the audit in time
- For budgeting purposes
- To pay attention to the risk areas of operation
(c) Sources of information that could assist the auditor in planning:-
- Inquiries of management and others within the entity: - Discussions with the client's key
management officials about the entity’s objectives and expectations, and its plans for
achieving these goals.
- Analytical procedures: - These involve comparing the company's results to those of the
industry ratios and trends that may be helpful to the auditor while carrying out analytical
procedures.
- Observation and inspection:- These involve a variety of procedures that include., Visiting
the client's premises to develop a better understanding of the company's businesses and
operations.
- Reading minutes of meetings and correspondence with the client.
- Reading previous year's audit files and permanent audit files.
- The auditor may also consider obtaining information from the entity's external legal
counsel, or externally available data sources, including analyst reports, industry journals,
government statistics, surveys, texts, financial newspaper and so on.
- Previous audits
- Clients records
- Confirmation from third parties
Kavungya answered the question on May 14, 2019 at 12:41
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