Question

(a) Give examples of how auditors gather information to help execute each step in Audit Planning (b) Describe materiality in general terms; discuss how auditors set materiality, and describe what role it plays in the audit. (c) Describe the factors auditors consider in setting audit risk

Answer 1

Answer (a) . For Conducting successful audit in organization , Auditor need to gather information from the company internal as well as external source. An audit is a formal check of financial accounts of an individual, business or organization. An internal audit is conducted by members of the same organization or business, and an external audit may be conducted by a regulatory agency or governmental agency. There are six specific steps in the audit process that should be followed to ensure a successful audit.

• Requesting Financial Documents

• Preparing an Audit Plan

• Scheduling an Open Meeting

• Conducting Onsite Fieldwork

• Drafting a Report

• Setting Up a Closing Meeting

Answer (b)- Materiality in general terms means the reference about, how much the information provided is fair and transparent in the manner so as to give reliability and usefulness of that given information? To obtain reasonable assurance about whether the financial statements are free of material misstatement, the auditor should plan and perform audit procedures to detect misstatements that, individually or in combination with other misstatements, would result in material misstatement of the financial statements. This includes being alert while planning and performing audit procedures for misstatements that could be material due to quantitative or qualitative factors.

Auditor set materiality of information in following way :

• Plan the nature, timing, and extent of audit procedures in efficient manner.
• Establish a materiality level for the financial statements as a whole that is appropriate in light of the particular circumstance.

• Establishing materiality Levels for Particular Accounts or Disclosures

• Determining Tolerable Misstatement

• Reevaluate the established materiality level or levels and tolerable misstatement , If any changes, consider eligible variations and correct that.

• Establishing materiality Levels for Particular Accounts or Disclosures.

It plays important role in considering above as :

• It helps in detecting error.
• Error can be eliminated by proper planning.
• Accounts are controlled in efficient manner.
• It helps auditor to check the fairness of accounts and information.
• Auditor get useful and relevant information to conduct and performing audit.
• they can identify the particular area where due consideration need to be given.

Answer (c) - Audit is the check of the correctness of accounts of the company, weather company accounts give fair and true picture of financial statements and those are considered for evaluation by stakeholder. The factors need to be considered in performing audit as below :

• Information gathered should be relevant to the objective.
• Information should be useful in nature.
• Information that is reliable is information that is accurate and credible , hence should be considered.
• Direct physical examination, observations and inspections channel must be considered and where it must be received in documentary form, rather than verbally.
• If auditor have any doubt or uncertainty about the objectives and scope, the auditor should
  clarify these with the audit manager and/or the client to avoid missing something important or
  setting off in the wrong direction.
• To decide the information auditor need for an engagement, auditors need to identify the
  general subject matter and the criteria that describe effectiveness and then to consider the amount
  and characteristics of information that they require.