Question: ACCT 4543 Audit Planning Project
Objective: This project is designed to help students experience the audit planning process, and thereby see how it helps direct 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 is of course a fictitious company whose company and financial information is available in the SUA materials and in the previous assignment.
Planning an audit involves the following processes-in no particular order, and by no means independent from each other:
1. Gain an understanding of the client's organization, its processes, and its environment.
2. Identify significant thresholds such as materiality and planned audit risk.
3. Assess the risk of material misstatement from error and/or fraud (inherent risk).
4. Evaluate the client's internal controls (control risk).
5. Based on the above, develop a logical audit plan.
Your audit plan should include at least the following:
- A description of the client, its processes, its key players, etc.
- Overall planned level of audit risk (AR) for the audit.
- Overall planning materiality and tolerable misstatement.
- Identification of the riskiest accounts/transactions/assertions and general comments about how these risks will affect the audit.
- Audit strategies for the audit in general and for individual cycles (related processes/accounts). This includes assessments of inherent risk (IR) and control risk (CR) for each cycle and brief discussions of the nature, timing, and extent of the resulting substantive tests.
- Discussion of the need for specialists, the use of the client's internal auditors, and potential going concern issues.
- Identification of the timing (dates) of fieldwork (including tests of controls and substantive tests), and reporting deadlines.
- Development of time budgets based on prior year actual and current year changes.
Special Instructions: The output from your work will be a multi-page memorandum summarizing important information, and documenting all of your planning decisions, as well as the related decision processes, rationales, and supporting analyses/documents. This informal document should summarize planning decisions, and provide direction for the audit. This project is a great opportunity to practice professional judgment. 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.