[Audit] 간략한 회계감사 전체 플로우(Overall Auditing Flow) (부제. Audit 공부시 반복해서 봐야할 제일 중요한 뼈대!)

[Audit]

간략한 전체 회계감사 (Overall Auditing Flow)
(부제. Audit 공부시 반복해서 봐야할 제일 중요한 뼈대!)

□ Overall Auditing Flow

★ Purpose of Auditing

To obtain a reasonable assurance if the financial statement have a misstatement by auditing management's assertions in accordance with GAAS through planning, analysis procedures, test of control, substantive test, reviewing by peer part.

(Procedure to select an external auditor)

I. Appointment of the Auditor

The audit committee of the client (who was appointed by board of directors) is responsible for the selection and appointment of the independent external auditor. This engagement selection includes as below,

ⓐ period

ⓑ nature

ⓑ standards

II. Understanding between practitioner(auditor) and client

(Procedures before accepting the Engagement)

1. Obtain a permission to contact with predecessor

ㆍClient's approval

ㆍPredecessor's approval

2. Communication with Predecessor

After Obtaining a permission to contact with predecessor, communicate about an experience with client during audit period due to its confidentiality and to disclose under a permission of the client. The questions might includes as below

ㆍIntegrity of the client

ㆍWhy happened to change auditor?

ㆍAny disagreement with client during auditing period?

ㆍIdentified any fraudulent of the client?

※ Predecessor's answer can be limited due to situation predecessor face legal sue process situation with the client or another issues

3. Check Auditability

ⓐ Client side

ㆍIntegrity of the client is good enough?

ㆍFinancially stable enough to pay audit fee?

ㆍDoes the potential client have sufficient and appropriate documents and information to be proved as reasonably assured?

※ If not, verify if the insufficiency was caused from client impose limitation or just merely was not capable to give. In former case, reject the engagement as a manner of scope limitation, latter verify one more time if you can audit with alternative method or evidences)

ⓑ Auditor side

ㆍIndependent financially and apparently?

(No stock for auditing client? No money lended? // amount from the client?)

※ Even though the auditor has just one stock which means practically nothing to do with the client, the appearance itself can make think the auditor is not independent

ㆍDo assigned auditor have a competence?

※ Even you do not have a competence you can accept the auditing because you have a sufficient time to have a competence

ㆍReady for possible professional aids such as actuary?

4. Engagement Letter between a client and successor auditing company

※ Engagement letter is required only written

Engagement might show as below,

ⓐ Engagement Objective: To give an opinion on F/S ///

ⓑ Management's responsibility and obligation

ㆍResponsible for financial statement including its preparation and compilation

ㆍResponsible for designing, implementation and maintaining internal controls in order to make financial statement fairly enough

ㆍResponsible for supplying documents, information, personnel sufficiently as requested by auditors

ㆍAgreement with the reporting form between the client and successor auditor

ㆍResponsible for giving a written representation letter at the end of the auditing

※ Verbal → Written

ㆍCompliance with laws and regulations

ㆍIf noted any material weakness on internal control, provide a letter to improve for reporting to the board of directors

ⓓ Limitation of the audit

ㆍAudit scope is to give reasonable assurance

ㆍAfter auditing there could be still undetected material misstatement

ⓔ Other Conditions

ㆍAuditing fee

ㆍSpecialist aids

ㆍAgreed reporting form

ㆍGive an authority to the auditors to participate year end inventory counting, to access to company's assets etc

(After accepting the Engagement)

5. Additional Audit Procedures for the first year client to verify the beginning balance of the client

ⓐ Review of predecessor's working paper to check if how planned, identified risk, I/C, substantive test and correspondent result

※ Required both permissions from client(confidentiality) and predecessor(owner)

ⓑ Analyzing the beginning balance by rolling back is required

※ Subsequent payment and collection after end of year, physical inventory (or if margin rate is similar for recent years, apply COGS profit method estimation)

※ If identified possible wrong information might influence or change to current F/S, request to the client to arrange a meeting between client, predecessor, successor to reach a conclusion

III. Planning

6. Prepare Overall Audit Strategy

In this stage, overall project planning starts such as reporting frame work, assigning in charge and staffs, project scheduling, timings (physical inventory, confirmations, when to input specialist), opinion deadline etc.

7. Team Discussion

Held a meeting under supervision of the partner to brains storming meeting(or conference call) for sharing possible issues considering industry characteristic based on knowledge and experiences

※ Potential misstatement? Who participate? Assign auditors to specific accounts(PM, in-charge, staffs) and professionals and technicians

(Audit Plan Starts)

8. Risk Assessment Procedures

ⓐ Financial Statement Level
and then Specific accounts and transaction level (higher level)

ㆍDefine Materiality → Audit Risk → Scope and Criteria

※ Non-disclosure to client (F/S level → account level)

ㆍAudit risk

= Inherent Risk X Control Risk X Detection Risk

※ IR X CR = RMM

※ Only DR can be change by auditor's effort level

※ IR depends on CEO (integrity, experience, pressure), business and industry situation

※ CR depends on I/C policy, procedures

for example)

if setting significant lower materiality level

→ Nature (More effective), Timing (closer to B/S date), Extent (Increasing samples)

ㆍObtain knowledge of client's business and industry including analytical procedures

※ Interim F/S, minutes of stockholder and board of directors, SEC filings, Tax return etc

ㆍUnderstand how the Internal Control designed and managed and maintained

ⓑ Detailed assessment plan (lower level)

ㆍAssign staff (more experience to higher level, lower experience to account level)

ㆍDesign the auditing less predictable

ㆍDistribute materiality to detailed accounts such as assets, liabilities, equities

ㆍDetailed plan by assigned and responsible auditor

※ If you see and set the materiality as significant lower materiality level become appropriate in evaluating audit findings, the auditor should reconsider and reevaluate the sufficiency level of the planned audit procedures, which means the audit planning can be adjustable and changeable depends on the findings and environment changes.

9. Test of Control

If analyzed its internal control seemingly designed well enough, to have a test with inspection if the design and implementation really worked effectively as designed. The sub-procedures can be different depends of the I/C working level.

※ Purpose of the I/C is to make reliable financial statement, controlled operating, to make better compliance with laws and regulation guided by COSO Committee (CRIME; Control activity, Risk assessment, Information and communication, Monitoring, control Environment)

※ But if the internal control does not seem to work out, pass this stage. Don't waste your resources.

[Type 1] (Good I/C identified)

ㆍNature, Extent, Timing can be less strict

(less effective, less sampling size, interim)

[Type 2] (No good I/C identified meanwhile presumption was good)

ㆍNature, Extent, Timing change to more strict than planned

(more effective, more sampling size, close to year end)

[Type 3] (No good I/C never designed nor implemented)

ㆍDo you take the risk of auditing this company without any I/C?

ㆍCan be result into disclaimer

(Audit Plan Ends)

10. Substantive test (Test of Details)

※ Sometimes analytical procedures needed but not required by GAAS in this S/T stage

ⓐ Verify transactions and review the documents considering inspection points as planned

Inspection and reviewing points to every assertion of the account

ㆍExistence or Occurrence

ex) By Vouching: Book → Verify confirmed evidence

(identify physically, get a bank confirmation)

ㆍCompleteness

ex) By Tracing: Physical evidence → Verify if booked properly

(identify accounting book, any missing liabilities?)

ㆍRight and Obligation

ex) Verify if the asset right on this client, any obligations on liabilities, any secured asset or payments etc

ㆍValuation / Allocation / Accuracy

ex) Valuation on its investments, debts, inventories etc

Allocation of the depreciation, prepaid expenses etc

Accuracy on its transaction

ㆍNote and Disclosure

ex) If notified publicly any potential legal levies, secured assets which might influence on investors due to its materiality

11. Consolidation of the results and review as one

As a result of these substantive tests, verify and analyze the whole result of the auditing reported by your assigned auditors in order to conclude an opinion if they identified and noted good enough evidences(sufficient and appropriate) in accordance with GAAS.

If you think gathered sufficient evidences and this time you can challenge if the financial statement have a material misstatement (considering consolidated result from all accounts)

12. Review by engagement partner

ㆍDoing Analytical Procedure to detect any missing material misstatement is required by GAAS

13. Preparing audit report

Does the F/S have a material misstatement?

14. Delivery of Audit Report

※ At time of delivery of Audit report should receive a written representation letter

"Unqualified"

"In our opinion, the financial statements referred to above present fairly, in all material respects ////"

"Qualified"

※ Almost same as unqualified opinion sentence but after "In our opinion," you have to add a comment "except + identified misstatement section"

"In our opinion, except for the effects of the company's incorrect determination of depreciation expense, the financial statements referred to above present fairly, in all material respects ////"

※ Opinion Sentence Sample Source from Wikipedia

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