Reference no: EM131125526
Objective: This project is designed to help students experience the complete audit planning process and learn how it helps direct an effective and efficient audit. It should also help students to gain an appreciation for the role professional judgment plays in planning an audit.
Description: Use the commentary below, along with concepts learned in class and from the textbook to plan the audit of EarthWear Clothiers. Earthwear is a fictitious company whose company and financial information is available in the textbook (right after Chapter 1) and at the textbook website (mhhe.com/messier9e – go to the student edition of the ‘Online Learning Center’ tab located in the lower left corner of the website. Click on the EarthWear Mini-cases Tab and then go to Chapter 3 – Audit Planning Memo to gain access to the 2014 financial information). Your task is to plan the 2014 audit of EarthWear! You will of course need to document the details supporting your plan in a memorandum (planning memo) so I can review your planning process.
During audit planning, the auditor performs many procedures to help determine the most effective and most efficient way of performing the audit. During audit planning, you should:
- Gain an understanding of your client’s organization, its processes, and its environment
- Evaluate your client’s inherent risk.
- Evaluate your client’s internal controls (control risk)
- Develop your audit plan
Your audit plan should include at least the following:
- Determination of overall planning materiality and tolerable misstatement for relevant accounts
- Identification of the riskiest accounts/transactions/assertions and some specific ideas for auditing these items
- Identification of the key business processes (core & supporting processes) and related accounts and developing an audit strategy for each process using the audit risk model (i.e., assessment of IR &CR to determine PDR).
- Determining the audit schedule, including reporting deadlines, and dates for field work.
Note: Although developing specific staffing and budgets are also typical during planning, we will not perform these tasks in this assignment.
A planning memo is an informal document that provides direction for the audit. Planning memos have no standardized format and may vary in length. They generally (1) summarize the results of planning activities, and (2) outline how the audit should proceed. The most important characteristic about a planning memo (especially for this class) is that the conclusions and judgments noted in the memo are supported by good reasoning and logic. Supporting schedules and questionnaires may be attached to the memo rather than included in the memo. Ultimately, if the in-charge senior were to suddenly quit, another senior should be able to read the planning memo and know exactly how to direct the audit. Planning memos do not include audit programs, which are detailed lists of audit procedures to be performed during the audit.
All the information you need to plan your audit and write a planning memo is contained in the workpapers at the Willis & Adams web site, and in the text. Some of this information may require some searching and lateral thinking to assemble. If information cannot be found, please make reasonable assumptions and proceed.
This project is to be completed in your assigned groups. The final product must be typed (single-spaced), and should be professional looking and easy to read. Planning memos have no predetermined length. However, for the purpose of this class, the memo should be restricted to a maximum of 10 pages. Please attach any supporting schedules or commentary as an appendix.