Reference no: EM132292426
Audit Planning Project
Objective: This project is designed to allow students to “experience” the audit planning process, and thereby see how it helps increase the likelihood of an effective and efficient audit. In particular, this project should help students see the importance of focusing on materiality and risk during a financial statement audit. It should also help students to gain an appreciation for the role of professional judgment in auditing. Students will be able to practice using professional judgment throughout the project.
Description: Use the instructions below—along with concepts learned in class and from the text—to plan the audit of Waren Sports Supply’s financial statements. Waren Sports Supply is a fictitious company whose company and financial information is available in the SUA materials. The output from your work will be a multi-page memorandum summarizing your audit plan.
Planning an audit involves the following processes—in no particular order, and by no means independent from each other:
1. Gain a thorough an understanding of the client’s organization, its processes, etc.
2. Set important thresholds (planned audit risk and materiality).
3. Identify the risks of material misstatements occurring (inherent risks).
4. Evaluate the quality of the client’s internal controls—on paper (control risks).
5. Based on the above, develop and document a logical audit plan.
Your audit memo should include the following sections:
- A description of the client, its processes, its key players, etc. (1 page for this project)
- Planned audit risk (AR) for the audit.
- Overall planning materiality and tolerable misstatement for the individual accounts.
- Risk assessment:
- Thorough preliminary analytical procedures (in Excel or Tableau), plus interpretations.
- Completion of a planning checklist (form CX-3), plus summary of important items.
- Summary of key conclusions from fraud brainstorming session.
- Identification of the riskiest accounts and/or transactions, including justifications (based on completing form CX-3a for each cycle).
- Strategies:
- Division of the financial statements into related processes or cycles.
- Identification of audit strategy for each cycle (i.e., related processes/accounts), including
- Substantive versus controls reliance
- Assessments of inherent risk (IR) and control risk (CR) for each cycle
- Justifications for each assessment
- Brief discussions of the nature, timing, and extent of the resulting planned audit tests.
- Discussion of potentially critical audit matters.
- Schedule for the audit.
Special Instructions: Your planning memo should document all your planning decisions—as well as the related decision processes and rationales, and all the supporting analyses, documents, and/or tables used in the decision process. This informal document should ultimately provide direction for the audit. This project is a great opportunity to practice critical thinking and professional judgment, where the appropriateness of your decisions and judgments depends on your ability to justify them. Hint: All judgments and conclusions in your plan should be supported by good reasoning and logic. Supporting schedules, analyses, and questionnaires should be included as appendices. For example, thorough preliminary analytical procedures should be performed using EXCEL or Tableau, and this should be printed out and attached to your memo—even though only certain items in the analysis will end up in the body of the memo. And the planning documents (CX-3 and CX-3a) should also be completed in its entirety—even though only important items will be summarized in the body of the memo. Remember, all significant items should be discussed in the body of the memo.
All the information you need to plan your audit is contained in the SUA materials, at the course website, or in this handout. Some of the information may require searching and/or lateral thinking to assemble. If information cannot be found, please make reasonable assumptions and proceed. For example, for some questions in the attached planning form, the answer will be N/A.
Do not procrastinate starting this assignment. A high quality audit plan will require considerable work. Although I say that creative accountants often go to jail, in this case originality and creativity is appreciated. Enjoy! I would like hard copies of the project turned in as well as electronically through Canvas.