Auditing Special Purpose Frameworks - Part 10: Planning and Performing the Audit

Read more from Larry Perry here and in the Today’s World of Audits archive.

AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks (SPFs), establishes the guidelines for audits of financial statements prepared using SPFs.

In my last article, I briefly discussed the auditor’s responsibility to evaluate the appropriateness and reasonableness of an entity’s applicable financial reporting framework. This normally is part of an auditor’s client acceptance and continuance decision-making and the beginning of the engagement planning process.

Paragraphs .12 and .13 of AU-C 800 present issues for an auditor’s consideration when planning and performing an audit of an entity using an SPF. These paragraphs indicate that an auditor must comply with all relevant AU-C sections when auditing an entity using an SPF. Specifically mentioned is the auditor’s responsibility to obtain an understanding of the entity’s selection and application of accounting policies. This understanding normally would be obtained when gathering information about the entity’s business, environment, and internal controls.

The effectiveness of an auditor’s planning process ultimately determines the efficiency with which an engagement can be performed. Following is an outline of some of the initial steps in planning an engagement, called the “preplanning phase.” Future articles will discuss these and other steps in more detail.

The Preplanning Phase
1. Obtain the prior year’s permanent, tax, correspondence, and current files.

  1. Become familiar with the auditor’s report, financial statements, and footnotes.
  2. Determine that the reporting framework is appropriate given the nature, size, and complexity of the client.
  3. If a change to SPFs, such as the AICPA Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), can save time in preparing financial statements and footnotes, as well as  audit engagement time, consult with management of the reporting entity and the user of the financials to determine if a change is possible.
  4. Review the prior year’s risk assessment procedures, levels of assessed risk, audit strategy, and audit plan (program) to determine if there are opportunities for changes that will save audit time charges in the current year.
  5. Review the key forms, practice aids, working papers, and other documentation in last year’s current file to determine if any client documents, unnecessary working papers, or correspondence can be eliminated this year.
  6. Determine if it is possible to use the prior year’s control risk assessment in the current year and if doing so can reduce the current year’s risk assessment procedures and other substantive tests.
  7. Read the internal control communication letter, and investigate the current status of significant deficiencies and material weaknesses and their effects on the current year auditing procedures.
  8. Prepare a list of procedures and activities that can be performed during interim work, make staffing requests, and schedule the interim work.
  9. Determine if specialists will be needed (e.g., IT persons, attorneys, valuation experts, actuaries).
  10. Prepare a list of schedules and other assistance to request from client, and deliver at least thirty days before the engagement date.

In the next article, I will discuss reviewing prior year’s working papers in more detail.

For an overview of the entire small audit engagement process, you can register for a free, one-hour webcast with CPE credit that will be presented on March 21, 2014. You can also register for twelve, two-hour webcasts in my Small Audit Series by clicking on the applicable box on the left side of my home page.


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