This 1 Hour Online CPD Course delivered by Des O’Neill of OmniPro examines the Audit Acceptance & Planning process that should be followed by all Auditors. Des provides practical advice and examples to ensure an efficient and compliant Audit.

1. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
In Association with:-
Online CPD for Accountants &
Professional Advisors
Audit Acceptance & Planning
Presenter:
Des O’Neill CPA; A.C.I.S; ACCA
CPDStore.com
Unit 3, South Court, Block D, Iveagh Court,
Wexford Road Business Park, 5 – 8 Harcourt Road,
Carlow. Dublin 2.
059 9183888 01 4110000
www.OmniPro.ie www.CPDStore.com

2. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Audit Acceptance and Planning
Contents Page
Audit Acceptance and Planning Presentation 1
Irish Audit Resource List 2011 26
Practice Note 26 Revised December 2009 29
Audit Planning Memorandum 68
Overall Materiality Calculation 101
Fraud Checklist 102

3. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
The Audit Overview
1. Accept the audit and comply with the ethical standards
2. Plan our approach identifying risk areas but focussing
on our overall objective to form an opinion.
3. Set overall strategy responding to assessed risks
4. Identify risks by gaining an understanding of the entity
5. Assess possibility of fraud
6. Devise and set out testing to achieve our objectives
responding to risks in accordance with ISAs
The Audit Overview
7. Do the testing and gather the evidence based on our
plan
8. Continually ensuring that quality control procedures are
being applied and complied with
9. Pay specific attention to areas of risk and perform
specific additional testing required to enable us form
overall opinion in this area
10. Reach conclusions based on testing done and
evidence gathered and form an opinion
11. Issue an audit report
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4. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Accepting The Audit Engagement
• Quality Control for Audits
– ISA 220
– ISQC 1
• Independence
– Code of Ethics
Accepting The Audit Engagement
New Audit Client
– Client information and background
– Source of client
– Professional clearance
– Previous audit reports
– Directors’ responsibilities
– Anti Money Laundering
– Company Search
– Letter of Engagement
ISA 220 – Quality Control for an Audit of
Financial Statements
• The auditor must implement quality control
procedures at engagement level that
provide the auditor with reasonable
assurance that
• The audit complies with professional
standards and applicable legal and
regulatory requirements
• The audit report issued is appropriate
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5. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 220 – Quality Control for an Audit of
Financial Statements
• Responsibilities or firm personnel in relation to
quality control for audits
• In conjunction with Ethical standards
• ISQC1
• Firm must establish a system of quality control
designed to provide with assurance
– Firm and personnel complies with professional
standards and regulatory and legal requirements
– Audit reports issued are appropriate
ISA 220 – Quality Control for an Audit of
Financial Statements
• Engagement teams
• Implement quality control procedures
• Provide firm with relevant information to
ensure system of quality control works
• Rely on the firm’s systems unless
otherwise advised
ISA 220 – Quality Control for an Audit of
Financial Statements
• Establish leadership responsibilities for quality on audits
• Engagement partner responsible for overall leadership in
relation to ensuring quality of the audit
• Ethical considerations are considered and complied with
• Parts A&B of IFAC Code of Ethics
– Integrity, objectivity, professional competence and
due care, confidentiality, professional behaviour,
independence
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6. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 220 – Quality Control for an Audit of
Financial Statements
• Partner evaluates and observes ethical
compliance and independence of team through
• Obtaining information and evaluating
circumstances and relationships through formal
and informal enquiry
• Evaluating information in relation to confirmed
breaches
• Taking appropriate action to eliminate threats
and safeguards
ISA 220 – Quality Control for an Audit of
Financial Statements
• Acceptance and continuance of the audit
engagement
– Integrity of business owners
– Competent audit team
– Ethical considerations met
– Significant matters arising in current or
previous audits
– Understanding and knowledge of the client
– Internal quality control procedures
ISA 220 – Quality Control for an Audit of
Financial Statements
• Assignment of Engagement Teams
• Understanding & practical experience through
partaking in similar audits and appropriate
training and participation
• Understanding of professional standards &
regulatory requirements
• Technical knowledge and expertise
• Knowledge of sector
• Ability to apply professional judgement
• Understanding of firm’s quality control policies
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7. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 220 – Quality Control for an Audit of
Financial Statements
• Engagement partner takes responsibility
for direction, supervision and performance
of the audit
• Before forming and issuing opinion has
sufficient appropriate audit evidence been
obtained
• Have the audit team undertaken
consultation where appropriate
ISA 220 – Quality Control for an Audit of
Financial Statements
• Engagement Quality Control Review
• Matters of significant judgement
• Areas of risk
• Corrected and uncorrected misstatements
• Audit findings letters
• Listed entities and others deemed appropriate
• Quality control reviewer appointed
• Discuss issues as they arise
• Not date the auditors report until quality control
review completed
ISA 220 – Quality Control for an Audit of
Financial Statements
• Documentation required
• Issues identified
– Compliance
– Ethical requirements
• Conclusions on issues identified
• Conclusions regarding acceptance and continuance
• Nature and scope of and conclusions relating to
consultations undertaken during the course of the audit
engagement
• Engagement quality control reviewer commentary and
outcomes and responses
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8. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Common Potential Ethical Threats
• Business, personal, family relationships
• Long association with the audit engagement
• Fee dependency
• Providing of non audit services
Potential Ethical Threats
• Self interest threat
• Self review threat
• Management threat
• Advocacy threat
• Familiarity threat
• Intimidation threat
Potential Safeguards Against Ethical and
Independence Threats
• Independent external quality control review
• External review of the significant subjective audit issues before audit
report is signed off.
• Involving an additional partner not involved on the audit engagement
to review the work done by the audit partner and to advise as
necessary (in the case of practices with one partner this could
involve a reciprocal arrangement with a partner from another audit
firm).
• Consultation on subjective matters with an independent external
third party (eg partner under reciprocal arrangement, expert) or with
the Institute before the audit report is signed off.
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9. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 300 – Planning an Audit of Financial
Statements
• The auditor should plan the audit so that the
engagement will be performed in an effective
manner
• Involvement of key engagement team
members
– Discussion among engagement team
• Preliminary Engagement Activities
– Continuance and Acceptance process
ISA 300 – Planning an Audit of Financial
Statements
• Establish overall strategy for the audit
• Scope of the engagement
• Reporting objectives
• Timing
• Deadlines
• Consider all important factors
• That will have an impact on the direction of
the audit and the approach taken
ISA 300 – Planning an Audit of Financial
Statements
• The Audit Plan
• Developed in order to reduce audit risk to an
acceptable low level
• Detailed document
• Nature
• Timing
• Extent of audit procedures
• Risk and assertion level responses
• Updated as engagement progresses
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10. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 300 – Planning an Audit of Financial
Statements
• Documentation required
• Overall audit strategy
• Audit plan
• Any significant changes made during the
audit to strategy and specific plan
• Initial Engagements
– Acceptance procedures
– Communication with previous auditor
ISA 300 – Planning an Audit of Financial
Statements
• Benefits of practical planning
• Devote appropriate attention to important areas
of the audit
• Identify and resolve issues on a timely basis
• Organise and manage the audit engagement
• Facilitate selection, direction and supervision of
team members
ISA 300 – Planning an Audit of Financial
Statements
• ISA 240 – Auditors responsibility to consider fraud in the
financial statements
• ISA 250 – Consideration of Laws and Regulations
• ISA 260 – Communication with those charged with
Governance
• ISA 315 – Obtaining and Understanding of the entity and
assessing the risks of material misstatement
• ISA 320 – Audit Materiality
• ISA 330 – The Auditors response to identified risks
• ISA 520 – Analytical Procedures
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11. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 300 – Planning an Audit of Financial
Statements
• Considerations Specific to Smaller Entities
• Establishing the overall strategy need not be a
complex or time consuming exercise
• A memorandum
• prepared based on review of previous working
papers
• highlighting issues identified,
• updated in the current period
• based on discussions with the owner
• once it addresses the technical requirements
ISA 300 – Planning an Audit of Financial
Statements
• Considerations Specific to Smaller Entities
• Sole practitioners significant involvement
• External consultation with suitably
qualified auditors
• Or professional body
ISA 300 – Planning an Audit of Financial
Statements
• Specific considerations to smaller entities
• Standard audit programmes or checklists
may be used
• On the assumption of few relevant control
activities
• Provided they are tailored to the entity’s
circumstances
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12. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 240 - The Auditors Responsibilities
Relating to Fraud in an Audit of Financial
Statements
• Auditors Objectives
• Identify and assess the risks of material
misstatement due to fraud
• Obtain sufficient appropriate audit
evidence by designing and implementing
appropriate responses
• Respond to suspected fraud identified
Professional Scepticism
• To be maintained throughout the audit
• Irrespective of past experiences
• Honesty and integrity of management
• Previous experience contributes to
understanding of the entity
• Unless auditor has reason to believe to the
contrary the auditor may accept documents as
genuine
• A questioning mind
The Fraud Detection Process
• Discussion among the team
• Risk assessment procedures
– Enquiries of management
– Enquiries of staff – financial reporting and non
financial at all levels
– The process and system for detecting fraud
– The communication process in relation to fraud
– Those charged with governance
– Unusual or unexpected relationships
– Evaluation of fraud risk factors
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13. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Using ISA 240 - Fraud
• What are we looking for when we are assessing
Fraud Risk Factors?
– Appendix 1 ISA 240
• What audit procedures can we implement to
address the assessed Fraud Risks Factors?
– Appendix 2 ISA 240
• What Circumstances Indicate a Possibility of
Fraud?
– Appendix 3 ISA 240
ISA 240
• Written representations – management
and those charged with governance
– Acknowledge responsibility for the design,
implementation and maintenance of internal
control to prevent and detect fraud
– Disclose to auditor result of managements
assessment of risk that FS have been
materially misstated as a result of fraud
ISA 240
• Written representations
• Knowledge of fraud or suspected fraud
– Management
– Employees who have significant roles in internal
control
– Others where fraud could have a material effect on
the financial statements
• Knowledge of allegations of fraud or suspected
fraud communicated by employees, former
employees, regulators or others.
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14. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Fraud Risk Factors for SMEs
• Poor trading results, significant losses, possible
liquidation
• Significant related party transactions with un-audited
entities
• Domination of management by a single person or group
of people
• Ineffective internal controls and system weaknesses
• Large amounts of cash
• Large number of small stock items
• Lack of control over assets and stock
Engagement Team Meeting
• Exchange of ideas and responses to potential frauds
• Opportunity for more experienced team members to
share their ideas
• Known external and internal factors including culture and
environment
• Managements involvement in overseeing employees
• Consideration of unusual or unexplained changes in
behaviour or lifestyle of employees
ISA 240 - Fraud
• Audit team discuss and assess likelihood
• Inquire of management and all relevant parties
• Documentation of internal controls
• Random approach to and nature of audit testing
• Specific testing at assertion level
• Assess possibility of management override
• Withdraw from engagement if necessary and
communicate with appropriate parties
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15. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 240 - Fraud
• Management Override
• Irrespective of overall risk assessment
• Substantive testing on journal entries
• Review of estimates
• Obtain an understanding of the entity to the
extent that you would be able to identify unusual
patterns, trends or transactions
• Revenue recognition
Revenue Recognition
• Shifting revenue to future periods
• Not recognising all revenues in the current
period
• To be supported by calculations and basis
for assumption where the conclusion is
reached that there is no risk of material
misstatement
Audit Procedures to Address Fraud Risk
Factors
• Location visits and surprise or unannounced
tests
• Interviews of personnel
• Cut off testing
• Substantive P&L & System testing
• Cash counts
• Random sample selection for testing purposes
– Not tested due to materiality or risk, different timing
methods, different sampling methods
• 3rd party confirmations
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16. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Commonly Overlooked Fraud Indicators
• Discrepancies in accounting records
• Missing documents
• Inconsistent or vague management and/or
employee responses
• Denial of access to records and information on a
timely basis
• Large number of credit entries
• Transactions not recorded on a timely basis
• Unwillingness to address system weaknesses
ISA 250 – The Auditors Responsibilities
Relating to Laws and Regulations
• Laws and regulations may materially affect
the financial statements
• Obtain a general understanding of the
legal and regulatory framework within
which the entity operates
• Assess safeguards to ensure compliance
and audit work to identify possible
instances of non compliance
ISA 250 – The Auditors Responsibilities
Relating to Laws and Regulations
• Money Laundering
• Criminal Justice Theft and Fraud Offences
• Tax Acts
• Companies Acts
• Trade Laws
• Laws of the Land
• Specific for the client, the sector & the entity
• Look beyond the accounts data and information
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17. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 250 – The Auditors Responsibilities
Relating to Laws and Regulations
• Establish and set out regulatory framework
• Inquire of management
• Inspect correspondence in relation to
licensing or regulatory authorities
• Remain alert to the possibility
• Written representations
ISA 320 – Materiality in Planning &
Performing the Audit
• Auditor should apply materiality
appropriately in planning and performing
the audit
• Materiality as a whole
• Performance materiality
• Revise as the audit progresses
ISA 320 – Materiality in Planning &
Performing the Audit
• When auditing financial statements
• Aim is to express an opinion
• That the financial statements are prepared
• In all material respects
• In accordance with financial reporting framework
• Use materiality
– when determining the nature, timing and extent of
audit procedures
– Evaluating the effect of misstatements
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18. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 320 – Materiality in Planning &
Performing the Audit
• Documentation required
• Materiality as a whole
• Materiality for particular classes of
transactions
• Performance materiality
• Revision of materiality as the audit
progresses
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• The auditor should obtain an understanding of
the entity and its environment
• including its internal controls
• sufficient to identify and assess the risks of
material misstatement
• of the financial statements whether due to fraud
or error
• at financial statement and assertion level
• and sufficient to design and perform further audit
procedures
ISA 315 – Practical Risk Assessment
• Where do we need to focus our attention?
• What are the issues that we will need to
consider in forming our final opinion?
• Where do we need to deviate from the
standard audit testing?
• Where do we need to do more testing and
take bigger sample sizes?
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19. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
Risk Assessment Procedures
• Inquiry of management and others within
the entity
• Analytical procedures
• Observation and inspection
ISA 315 Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity
• Industry regulatory and other external factors
• Nature of the entity, including selection and application
of accounting policies
– Business operations, financing, structure and financial control
• Selection and application of accounting policies
• Objectives and strategies and the related business risks
that may result in a material misstatement of the financial
statements
– Future plans and operations of the company
• Measurement and review of the entities performance
– KPIs and ratios
• Internal control
ISA 315 Understanding the entity and its
Environment and Assessing the Risks of
Material Misstatement
Internal Control
• The control environment
• The entities risk assessment process
• The information system including the
related business processes, relevant to
financial reporting and communication
• Control activities
• Monitoring of controls
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20. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
Understanding of the Information System
• Classes of transactions that are significant to the FS
• Initiating, recording, processing and reporting
• The related accountings records
• How the information systems captures events and
conditions other than classes of transactions, that
are significant to the financial statements
• Financial reporting process used to prepare the
entities financial statements, including significant
accounting estimates and disclosures
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• Assertions about classes of transactions
and events for the period
– Occurrence
– Completeness
– Accuracy
– Cut – Off
– Classification
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• Assertions about balances at the period
end
– Existence
– Rights & Obligations
– Completeness
– Valuation and allocation
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21. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• Assertions about presentations and
disclosures
– Occurrence and rights and obligations
– Completeness
– Classification and understand ability
– Accuracy
– Valuation
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• Significant risks should be identified
– Fraud
– Pending litigation
– Any major recent developments including economic and
accounting changes
– Rapid business expansion
– Complex transactions
– Weaknesses in internal control
– Degree of subjectivity of those involved with measurement of
financial information
– Going concern issues
– Unusual transactions outside the normal course of business
ISA 315 Identifying and Assessing the Risks
of Material Misstatement
• Documentation
– Discussion among the engagement team
– Key elements of understanding
– Identified and assessed risks of material
misstatement
– Risks identified and related controls
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22. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 330 The Auditor’s Responses to
Assessed Risks
• Obtain sufficient appropriate audit
evidence
• regarding assessed risks of material
misstatement
• by designing and implementing
appropriate responses to risks
• Substantive tests
• Tests of controls
ISA 330 The Auditor’s Responses to
Assessed Risks
• Should perform audit procedures whose nature, timing
and extent are responsive to the identified risks of
material misstatement
• Nature – inspection, observation, inquiry, confirmation,
recalculation, re performance, analytical procedures
• Timing – when procedures are performed or what period
they examine
• Extent – quantity of audit procedures undertaken.
Sample size or number of observations
ISA 330 The Auditor’s Responses to
Assessed Risks
• Test of Controls
• Design and perform tests of control in
relation to their effectiveness
• Impact on assertion level testing
• Substantive procedures alone can not
provide sufficient appropriate audit
evidence at assertion level
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23. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 330 The Auditor’s Responses to
Assessed Risks
• How to test controls
• How were they applied during the period
• How consistently were they applied
• By whom or by what means were they
applied
• Depending on circumstances may rely on
previous control tests minimum test once
every 3rd audit
ISA 330 The Auditor’s Responses to
Assessed Risks
• Substantive procedures
• Regardless of risks
• Auditors should design and perform
substantive procedures for each
• material class of transaction
• account balance
• and disclosure
ISA 330 The Auditor’s Responses to
Assessed Risks
• Substantive procedures
• Agree the financial statements to
underlying accounting records
• Examine material journal entries made
during the course of preparing the financial
statements
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24. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 330 The Auditor’s Responses to
Assessed Risks
• Evaluate Audit Evidence
• Based on audit evidence gathered
• Make judgement whether risk assessment
is appropriate and sufficient
• Adequacy of presentation and disclsoure
• And form a suitable opinion
• This audit evidence and opinion reached
must be documented on the file
ISA 330 The Auditor’s Responses to
Assessed Risks
• Documentation
– Overall responses to risk
– Linkage of procedures to risks at assertion
level
– Results of the audit procedures
– Financial statements agree with underlying
accounting records
ISA 520 – Analytical Procedures
• Objectives
• Obtain relevant and reliable audit evidence
when using substantive analytical
procedures
• Design and perform analytical procedures
near the end of the audit when forming an
overall conclusion as to whether the
financial statements are consistent with
the auditors understanding
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25. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
ISA 520 – Analytical Procedures
• Substantive analytical procedures
– For specific assertions at planning stage
• Analytical procedures that assist when
forming an overall conclusion
• Investigate the results of analytical
procedures
– Enquiry of management
– Performing other audit procedures
The Audit Overview
1. Accept the audit and comply with the ethical standards
2. Plan our approach identifying risk areas but focussing
on our overall objective to form an opinion.
3. Set overall strategy responding to assessed risks
4. Identify risks by gaining an understanding of the entity
5. Assess possibility of fraud
6. Devise and set out testing to achieve our objectives
responding to risks in accordance with ISAs
The Audit Overview
7. Do the testing and gather the evidence based on our
plan
8. Continually ensuring that quality control procedures are
being applied and complied with
9. Pay specific attention to areas of risk and perform
specific additional testing required to enable us form
overall opinion in this area
10. Reach conclusions based on testing done and
evidence gathered and form an opinion
11. Issue an audit report
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26. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
OmniPro Services
• Assist Accountants
• Maximise profitability
• Improve quality of customer service
• Be compliant – Institute, audit company &
law
• Achieve success
• Gain peace of mind
• The Accountants Resource Centre
Accountants Resource Centre
• Large Company Audit File
– Programmes and the integrated working papers and file
• Small Company Audit File
– Programmes and the integrated working papers and file
• Audit Exempt, Sole Trader, Property Management and
Charity File
• ISQC1 Manual Sole Practitioner and Partner
• Template letters and communications
• Ongoing technical updates
• Audit Report Tracker
• Coming 2011 - Members forum
OmniPro Services
• OmniPro Corporate Consultants
– Company Formation Services
• Standard Formations for €250.00 (incl VAT)
• 24 Hour Turn Around
– Company Secretarial Services
• Annual Compliance
• All Company Secretarial Special Assignments
• Company Secretarial Training
• Next Door to the Companies Registration Office
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27. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
OmniPro Services
• OmniPro Practice Support
– Pre-Monitoring Visits
– Strategic Planning & Implementation
– Practice Development
– Practice Sale, Purchase & Merger
– In House Training
– File Review Services
• OmniPro Strategic Solutions
– Product & Marketing Solutions to Build Business Advisory
Fees
– Practice Growth Solutions
OmniPro Services
• OmniPro Education & Training
– Professional CPD Seminars
• Technical CPD
• Personal Development Training for
Accountants
– Time management, business communication
skills, Presentation skills, team leadership,
management development
• In House Training
OmniPro
Supporting Irish Accountants
Unit 3 South Court, Iveagh Court
Wexford Road Business Park, Harcourt Road
Carlow. Dublin 2
doneill@omnipro.ie gwynne@omnipro.ie
059 9183888 01 4110000
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28. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.
Auditors Resource List 2011
Title Description Source Download
1 International Standards on Auditing
2010 Handbook of International Quality Control, Auditing, Review, Other
Assurance, and Related Services Pronouncements IAASB http://web.ifac.org/publications
General Principles and Responsibilities
Overall Objectives of the Independent Auditor and the Conduct of an Audit in
200 Accordance with the International Standards on Auditing IAASB http://web.ifac.org/publications
210 Agreeing the Terms of Audit Engagements IAASB http://web.ifac.org/publications
220 Quality Control for an Audit of Financial Information IAASB http://web.ifac.org/publications
230R Audit Documentation IAASB http://web.ifac.org/publications
240 The Auditor's Responsibilities relating to Fraud in an Audit of Financial Statements IAASB http://web.ifac.org/publications
250 Consideration of Laws and Regulations in an Audit of Financial Statements IAASB http://web.ifac.org/publications
260 Communication With Those Charged with Governance IAASB http://web.ifac.org/publications
Communicating Deficiencies in Internal Control to Those Charged with
265 Governance and Management
Risk Assesment and Response to Assessed Risks
300 Planning an Audit of Financial Statements IAASB http://web.ifac.org/publications
Identifying and Assessing the Risks of Material Misstatement through
315 Understanding the Entity and It's Environment IAASB http://web.ifac.org/publications
320 Materiality in Planning and Performing an Audit IAASB http://web.ifac.org/publications
330 The Auditor's Responses to Assessed Risks IAASB http://web.ifac.org/publications
402 Audit Considerations Relating to an Entity Using a Service Organisation IAASB http://web.ifac.org/publications
450 Evaluation of Misstatements Identified During the Audit IAASB http://web.ifac.org/publications
Audit Evidence
500 Audit Evidence IAASB http://web.ifac.org/publications
501 Audit Evidence - Specific considerations for Selected Items IAASB http://web.ifac.org/publications
505 External Confirmations IAASB http://web.ifac.org/publications
510 Initial Engagements - Opening Balances IAASB http://web.ifac.org/publications
520 Analytical Procedures IAASB http://web.ifac.org/publications
530 Audit Sampling IAASB http://web.ifac.org/publications
Audit of Accounting Estimates, Including Fair Value Accounting Estimates, and
540 Related Disclosures IAASB http://web.ifac.org/publications
550 Related Parties IAASB http://web.ifac.org/publications
560 Subsequent Events IAASB http://web.ifac.org/publications
570 Going Concern IAASB http://web.ifac.org/publications
580 Written Representations IAASB http://web.ifac.org/publications
Using the Work of Others
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Speicial Considerations - Audits of Group Financial Statements (Including the
600 Work of Component Auditors) IAASB http://web.ifac.org/publications
610 Considering the Work of Internal Auditors IAASB http://web.ifac.org/publications
620 Using the work of an Auditor's Expert IAASB http://web.ifac.org/publications
Audit Conlusions and Reporting
700 Forming an Opinion and Reporting on Financial Statements IAASB http://web.ifac.org/publications
705 Modifications to the Opinion in the Independent Auditor's Report IAASB http://web.ifac.org/publications
Emphasis of Matter Paragraphs and Other Matters Paragraphs in the Independent
706 Auditor's Report IAASB http://web.ifac.org/publications
Comparative Information - Correpsonding Figures and Comparative Financial
710 Statements IAASB http://web.ifac.org/publications
The Auditors Responsibilities Relating to Other Information in Documents
720 Containing Audited Financial Statements IAASB http://web.ifac.org/publications
Specialised Areas
Audits of Financial Statements Prepared in Accordance with Special Purpose
800 Frameworks IAASB http://web.ifac.org/publications
Audits of Single Financial Statements and Specific Elements, Accounts or Items of
805 a Financial Statement IAASB http://web.ifac.org/publications
810 Engagements to Report on Summary Financial Statements IAASB http://web.ifac.org/publications
2 Ethics
2010 Handbook of Code of Ethics for Professional Accountants IFAC http://web.ifac.org/publications
3 Bulletins
2006-1 Auditors Reports on Financial Statements in ROI APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1
Audit Issues when Financial Market Conditions are Difficult and Credit Facilities
2008-1 may be restricted APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1
2008-10 Going Concern issues during the Current Economic Conditions APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1
2009-2 Auditors Reports on Financial Statements in the United Kingdom APB http://www.frc.org.uk/apb/publications/bulletins.cfm?Start=1
4 Practice Notes
PN 09 Reports by Auditors under Companies Legislation in ROI APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 11 The audit of Charities in UK APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 15 The audit of Occupational Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 16 Bank Reports for Audit Purposes in UK APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 19 The Audit of Banks APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 20 The Audit of Insurers APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 21 Audit of Investment Businesses in UK APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 22 Auditors Consideration of FRS 17 Retirement Benefits Defined Pension Schemes APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 23 Auditing Complex Financial Instruments (Interim Guidance) APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 24 Audit of Friendly Societies in UK APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 25 Attendance at Stock Taking APB http://www.frc.org.uk/apb/publications/practice.cfm
PN 26 Guidance on Smaller Entity Audit Documentation (Revised Dec 2009) APB http://www.frc.org.uk/apb/publications/practice.cfm
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PN 27 The Audit of Credit Unions APB http://www.frc.org.uk/apb/publications/practice.cfm
5 Miscellaneous Technical Statements
M01 Auctioneer and House Agents Acts 1947 and 1967 CCABI Institute Website
M09 Accouting for goods sold subject to reservation of title CCABI Institute Website
M21 Director's obligation under Section 40 of the Companies (Amendment) Act 1983 CCABI Institute Website
M22 Credit Unions - ROI CCABI Institute Website
Accountants report on license applications to Department of Tourism, Transport
M27 and Communications Dublin CCABI Institute Website
M31 Accounting for redemption and purchase of own shares by companies in ROI CCABI Institute Website
M32 Related party disclosures CCABI Institute Website
M35 Solicitors accounts Regulations 1998 - Northern Ireland CCABI Institute Website
M37 Restoration of companies to register - ROI CCABI Institute Website
M38 Solicitors accounts regulations 2001 - ROI CCABI Institute Website
M39 Reporting to third parties CCABI Institute Website
Chartered Accountants reports on compilation of financial statements of
M41 incorporated entities CCABI Institute Website
M42 Anti Money Laundering Guidance in ROI CCABI Institute Website
M43 Compilation of alternative annual reports of certain pension schemes in ROI CCABI Institute Website
Guidance reporting Guidance Notes 1 05 UCITS Publication of a simplified
M44 prospectus issued by Financial Regulator CCABI Institute Website
M45 Grant claims CCABI Institute Website
Reporting to Financial Regulator under Central Bank and Financial Services
M46 Authority of Ireland Act 2004 revised January 2005 CCABI Institute Website
Guidance for reporting in accordance with client money regulations issued by
M47 Financial Regulator February 2004 CCABI Institute Website
Chartered Accountants Reports on compilation of Historical Financial information
M48 of Unincorporated Entities CCABI Institute Website
6 General
ISQC1 International Standard on Quality Control IAASB http://www.ifac.org/Guidance/EXD-Details.php?EDID=0086
Guide to Using the ISAs for SMEs IFAC http://www.ifac.org/Members/DownLoads/ISA_Audit_Guide.pdf
Guide to Quality Control for SMEs
Applying ISAs Proportionately with the Size and Complexity of an Entity IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board
Audit Considerations in Respect of Going Concern in the Current Economic
Environment IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board
Emerging Practical Issues Regarding the use of External Confirmations in the
Audit of Financial Statements IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board
Challenges in Auditing Fair Value Accounting Estimates in the Current Market
Environment IFAC http://web.ifac.org/publications/international-auditing-and-assurance-standards-board
The Role of Small and Medium Practices in providing Business Support to Small
and Medium sized Enterprises IFAC http://web.ifac.org/publications/small-and-medium-practices-committee
Quality Control for Small and Medium Sized Practices IFAC http://web.ifac.org/publications/small-and-medium-practices-committee
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Practice
26
2009
Note (Revised)
GUIDANCE ON SMALLER ENTITY
December
AUDIT DOCUMENTATION
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Practice Note 26 (Revised) December 2009
PRACTICE NOTE 26
GUIDANCE ON SMALLER ENTITY AUDIT
DOCUMENTATION (REVISED)
Contents Paragraphs
1. Introduction 1–4
2. Purposes of audit documentation 5 – 11
3. Special considerations in the documentation of a smaller entity audit 12 – 35
4. Audit documentation requirements in ISAs (UK and Ireland) 36 – 42
Appendix A – Summary of documentation requirements and guidance in
ISAs (UK and Ireland)
Appendix B – Illustrative examples of audit documentation
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Practice Note 26 (Revised) December 2009
Introduction
1. This Practice Note provides guidance to auditors on the application of documentation
requirements contained within the clarified International Standards on Auditing (ISAs)
(UK and Ireland)1 to the audit of financial statements of smaller entities in an efficient
manner. It should be read in conjunction with the ISAs (UK and Ireland). It is not intended
to be comprehensive guidance on the application of ISAs (UK and Ireland) to smaller
audits2.
2. The guidance in this Practice Note is directed to auditors of smaller, simpler entities.
Typically these would be entities where:
ownership is concentrated in a small number of individuals (sometimes a single
individual) who are actively involved in managing the business; and
the operations are uncomplicated with few sources of income and activities; and
business processes and accounting systems are simple; and
internal controls are relatively few and may be informal.
Such entities are likely to include companies which are exempt from audit but which
choose nonetheless to have a voluntary audit, small subsidiary companies, other smaller
entities such as charities, as well as larger entities that are also relatively simple.
However, a more detailed and rigorous approach may be necessary in smaller entities
with complex operations or in respect of complex and subjective matters.
3. The guidance focuses on areas where feedback on the original implementation of the
ISAs (UK and Ireland) in 2004 identified that further guidance on audit documentation
could be helpful. For example, there can be uncertainty about the extent of
documentation required to evidence the auditor’s understanding of the entity, especially
with regard to internal control3.
1 The clarified ISAs (UK and Ireland) were issued by the APB in October 2009 and are effective for audits
of financial statements for periods ending on or after 15 December 2010.
2 The ISAs (UK and Ireland) also include guidance on considerations specific to smaller entities which
may assist in the application of the standards.
3 ISA (UK and Ireland) 315 requires the auditor to document key elements of understanding obtained
regarding:
relevant industry, regulatory and other external factors including the applicable financial reporting
framework;
the nature of the entity;
the entity’s selection and application of accounting policies;
the entity’s objectives and strategies;
the means by which the entity’s financial performance is measured and reviewed; and
each of the internal control components (the control environment, the entity’s risk assessment
process, the information system, control activities, and monitoring controls).
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Practice Note 26 (Revised) December 2009
4. There are many different ways in which audit documentation can be prepared to meet the
requirements of ISA (UK and Ireland). The examples which are included in Appendix B to
this document are illustrative of some of the possible ways in which compliance with the
documentation requirements can be achieved. However, these illustrative examples are
not mandatory.
Purposes of audit documentation
5. ISA (UK and Ireland) 230, ‘‘Audit Documentation,’’ states that the objective of the auditor
is to prepare documentation that provides:
(a) A sufficient and appropriate record of the basis for the auditor’s report; and
(b) Evidence that the audit was planned and performed in accordance with ISAs (UK and
Ireland) and applicable legal and regulatory requirements.
6. ISA (UK and Ireland) 230 explains that, in principle, compliance with the requirements of it
will result in the audit documentation being sufficient and appropriate in the
circumstances.
7. Some of the other ISAs (UK and Ireland) contain specific documentation requirements
that are intended to clarify the application of ISA (UK and Ireland) 230 in the particular
circumstances of those other standards. The absence of a documentation requirement in
any particular ISA (UK and Ireland) is not intended to suggest that there is no
documentation that will be prepared as a result of complying with that standard.
8. Importantly, ISA (UK and Ireland) 230 also explains that it is neither necessary nor
practicable for the auditor to document every matter considered, or professional
judgment made, in an audit. Further, it is unnecessary for the auditor to document
separately (as in a checklist, for example) compliance with matters for which compliance
is demonstrated by documents included within the audit file (e.g. the existence of an
adequately documented audit plan demonstrates that the auditor has planned the audit).
9. The auditor is required to prepare audit documentation on a timely basis. ISA (UK and
Ireland) 230 explains that preparing sufficient and appropriate audit documentation on a
timely basis helps to enhance the quality of the audit and facilitates the effective review
and evaluation of the audit evidence obtained and conclusions reached before the
auditor’s report is finalised. Documentation prepared after the audit work has been
performed is likely to be less accurate than documentation prepared at the time such
work is performed.
10. In addition to the objectives in paragraph 5, audit documentation serves a number of
additional purposes, including:
assisting the engagement team to plan and perform the audit;
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Practice Note 26 (Revised) December 2009
assisting members of the engagement team responsible for supervision to direct and
supervise the audit work, and to discharge their review responsibilities in accordance
with ISA (UK and Ireland) 220, ‘‘Quality Control for an Audit of Financial Statements’’;
enabling the engagement team to be accountable for its work;
retaining a record of matters of continuing significance to future audits;
enabling the conduct of quality control reviews and inspections in accordance with
International Standard on Quality Control (ISQC) (UK and Ireland) 1, ‘‘Quality Control
for Firms that Perform Audits and Reviews of Financial Statements, and Other
Assurance and Related Services Engagements’’; and
enabling the conduct of external inspections in accordance with applicable legal,
regulatory or other requirements.
11. Complying with the documentation requirements of the ISAs (UK and Ireland) can also
assist the auditor’s consideration of the issues associated with significant matters arising
during the audit. This often enhances the quality of the reasoning followed, the
judgments made and the conclusions reached. In the UK and Ireland external monitoring
of audits has consistently emphasised the need for high quality documentation of the
rationale for the key audit judgments made in reaching the audit opinion. As noted in
paragraph 13 below, documentation of significant professional judgements made in
reaching important conclusions is now clearly identified as a requirement in ISA (UK and
Ireland) 230.
Special considerations in the documentation of a smaller entity audit
12. The nature and extent of audit documentation that is appropriate for an audit of a smaller
entity is influenced by special considerations which arise from:
the qualitative indicators of a simpler entity as set out in paragraph 2:
concentration of ownership and management;
uncomplicated operations;
simple accounting systems; and
relatively small number and informal nature of controls; and
the characteristics of a typical smaller entity audit team and the way in which they
carry out the audit work, including:
the nature of the professional relationship between smaller entities and their
auditors;
relatively small team size;
the use of proprietary audit systems.
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Practice Note 26 (Revised) December 2009
13. Notwithstanding these special considerations, an audit of the financial statements for a
smaller entity must still comply with the ISAs (UK and Ireland) and all audit
documentation must be prepared in sufficient detail to enable an experienced auditor,
having no previous connection with the audit, to understand:
(a) The nature, timing, and extent of the audit procedures performed to comply with the
ISAs (UK and Ireland) and applicable legal and regulatory requirements;
(b) The results of the audit procedures performed, and the audit evidence obtained; and
(c) Significant matters arising during the audit, the conclusions reached thereon and
significant professional judgments made in reaching those conclusions.
Concentration of ownership and management
14. The ownership of a smaller entity is often concentrated in a small number of individuals,
one or more of whom are actively involved in managing the business on a day-to-day
basis. In these circumstances, the auditor’s documentation of the entity’s ownership and
governance arrangements is likely to be relatively brief.
15. Particular consideration and documentation may be needed of matters, such as family
and other close relationships, which may impact the auditor’s risk assessments in
relation to related parties.
Uncomplicated operations
16. Smaller entities often have a limited range of products or services and operate from a
limited number of locations, with the consequence that their processes and structures
are uncomplicated. In circumstances where an entity’s business, processes and
structures are uncomplicated, the documentation of the auditor’s understanding of such
an entity’s operations and of the relevant industry, regulatory and other external factors
required under ISA (UK and Ireland) 315 is likely to be simple in form and relatively brief.
17. This understanding may be documented using, for example, free-form narrative notes or
by completing a structured form. The notes may be maintained separately or
incorporated in the documentation of the overall audit strategy required by ISA (UK and
Ireland) 300.
18. To comply with the ISAs (UK and Ireland), it is not necessary to document the entirety of
the auditor’s understanding of the entity and matters related to it. Key elements of the
understanding documented by the auditor include those on which the auditor has based
the assessment of the risks of material misstatement in the financial statements.
Simple accounting systems
19. Most smaller entities have a relatively uncomplicated accounting process. They are likely
to employ few, if any, personnel solely engaged in record-keeping and there will be
limited opportunities for segregation of duties.
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Practice Note 26 (Revised) December 2009
20. Bookkeeping procedures and accounting records are often simple and there are usually
no documented descriptions of accounting policies or procedures. Smaller entities are
likely to use an off-the-shelf accounting package in producing their accounts.
Understanding of the accounting package in question, including that gained from other
audits, can help the auditor to identify and focus on areas of risk of misstatement that
arise from the accounting system.
21. The audit documentation associated with the accounting system is likely to be relatively
simple, focussing on how the main transaction cycles operate (including how a
transaction originates and gets recorded) and highlighting the risks of material
misstatement that arise from the nature of the systems in place4.
Relatively small number and informal nature of controls
22. In the audit of a smaller entity, the auditor may decide that most of the audit evidence will
be obtained from substantive tests of detail. Notwithstanding this, as part of the process
of assessing the risks of material misstatement, the auditor is required by ISA (UK and
Ireland) 315 to obtain and document an understanding of the components of the entity’s
internal control relevant to the audit (including, for example, the control environment,
information systems relevant to financial reporting, and control activities).
23. Size and economic considerations in smaller entities often reduce the opportunity for
formal control activities, although some basic control activities are likely to exist for the
main transaction cycles such as revenues, purchases and employment costs.
Management’s direct control over key decisions and the ability to intervene personally at
any time to ensure an appropriate response to changing circumstances are often
important features of the management of any entrepreneurial venture. For example,
management’s sole authority for granting credit to customers and approving significant
purchases can provide strong control over those important account balances and
transactions, lessening or removing the need for more detailed control activities.
Furthermore, management often has a personal interest in safeguarding the assets of the
entity, measuring its performance and controlling its activities, and so they will apply their
own controls and develop their own key indicators of performance.
24. However, the dominant position of management in a smaller entity may be abused and
can result in the override of controls and inaccurate accounting records. Furthermore,
personal and business objectives can be inextricably linked in the mind of the owner-
manager, which increases audit risk. For example, personal tax planning considerations
4 Auditors of UK companies will be conscious of their responsibilities under Section 498 of the
Companies Act 2006 to carry out such investigations as will enable them to form an opinion as to
whether adequate accounting records have been kept by the company. Equivalent requirements for
the Republic of Ireland relate to proper books of account and are contained in section 193 of the
Companies Act 1990.
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Practice Note 26 (Revised) December 2009
might be important and could provide management with the motivation to bias the
financial statements.
25. The extent and nature of management’s involvement in internal control in a smaller entity
is likely to be a key aspect in the documentation of the auditor’s understanding of the
entity and assessment of risk, including, for example:
The evaluation of the control environment, including consideration of the attitude and
motives of management based on prior year experience and the observation of
management’s actions during the audit.
Specific control activities relevant to the audit. These are likely to be limited but may
include management’s direct involvement in, and/or supervision of, controls that
mitigate risks of material misstatement.
The key indicators used by management for evaluating financial performance.
Nature of the professional relationship between smaller entities and their auditors
26. Management of a smaller entity often need professional advice and assistance on a wide
range of accounting and related financial and business issues which are not available ‘‘in-
house’’, and it is common for the audit firm to provide non-audit services including
accounting and taxation services. These services can enable the auditor to obtain useful
information about the entity and about its objectives and strategies and the management
style and ethos, as well as helping to keep the understanding of the entity up to date and
so plan the audit efficiently.
27. In circumstances where the audit firm provides non-audit services, the auditor bears in
mind the need to maintain objectivity when forming and expressing an opinion on the
financial statements. When forming an opinion, but before issuing the report on the
financial statements, the audit engagement partner reaches and documents an overall
conclusion5 that any threats to objectivity and independence have been properly
addressed in accordance with APB Ethical Standards including, where appropriate, ES –
Provisions Available for Small Entities6.
28. The documentation considerations associated with providing non-audit services include
the following:
5 As required by paragraphs 48 and 64 of ES 1.
6 ES – Provisions Available for Small Entities provides alternative provisions for auditors of Small Entities
(size criteria for Small Entities are set out in paragraph 4) to apply in respect of certain threats arising
from economic dependence and the provision of non-audit services and allows the option of
exemptions from certain requirements in ES 1 to 5.
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Practice Note 26 (Revised) December 2009
To achieve completeness of ‘audit documentation’, any information, gained as a
result of the provision of other services, which is used as audit evidence needs to be
incorporated or cross-referenced into the audit documentation.
The auditor’s assessment of his or her objectivity and independence is documented,
including a description of the threats identified and the safeguards applied to
eliminate or reduce the threats to an acceptable level7.
The respective responsibilities of the directors (or equivalent) and the auditor are
documented in an engagement letter. This is particularly important where the audit
firm is involved in the preparation of the financial statements.
Relatively small audit team size
29. Audits of smaller entities may be conducted by small audit teams, possibly involving the
audit engagement partner working with one audit assistant (or without any audit
assistants).
30. ISA (UK and Ireland) 230 explains that the audit documentation for the audit of a smaller
entity is generally less extensive than that for the audit of a larger entity. Further, in the
case of an audit where the engagement partner performs all the audit work, the
documentation will not include matters that might have to be documented solely to
inform or instruct members of an engagement team, or to provide evidence of review by
other members of the team (for example, there will be no matters to document relating to
team discussions or supervision). Nevertheless, the engagement partner complies with
the overriding requirement described in paragraph 13 above to prepare audit
documentation that can be understood by an experienced auditor, as the audit
documentation may be subject to review by external parties for regulatory or other
purposes.
31. However, as the size of the engagement team increases, or where more inexperienced
team members are introduced, more detailed documentation may assist the team in
obtaining an appropriate understanding of the entity. There may also be more reviews
performed in compliance with quality control policies and procedures, although the
format of documentation for these reviews is not affected by the audit team size.
32. ISA (UK and Ireland) 230 suggests that when preparing audit documentation, the auditor
of a smaller entity may find it helpful and efficient to record various aspects of the audit
together in a single document, with cross-references to supporting working papers as
appropriate. Examples of matters that may be documented together in the audit of a
smaller entity include the understanding of the entity and its internal control, the overall
audit strategy and audit plan, materiality determined in accordance with ISA (UK and
7 As required by ES 1, paragraph 64, and ES 5, paragraph 37.
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