Auditing Special Purpose Frameworks: Planning Document, Part 1

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

In an auditor's design of cost-beneficial audit strategies, consideration of the nature, extent and timing of auditing procedures will be a primary focus. Creating engagement documentation for all applicable quality control and auditing standards will be equally important. Inquiries of reporting entity personnel occur throughout an audit engagement and may be documented in a number of ways. Minimizing the number of worksheets and memorandums documenting these inquiries should also be a primary planning objective.

A Planning Document is a cost-efficient way to document inquiries from the planning phase of an audit engagement and to coordinate and summarize the results of various risk assessment procedures. The engagement administration section of an illustrative Planning Document is presented below. (Technical audit planning decisions documentation will be covered in Part 2 of this article.)

Instructions for the Planning Document
The engagement in-charge accountant and/or the engagement leader should complete the document before engagement personnel begin fieldwork. The document should describe planning procedures accomplished and/or planned and may contain cross-references to other planning practice aids.

Part I: Engagement Administration

  1. Delivery of Engagement Letter

The engagement letter is one of an auditor's primary tools for obtaining client understanding of its responsibilities and the auditor's responsibilities. A good understanding before the engagement begins will prevent misunderstandings from arising later. To accomplish a good understanding, the engagement leader should deliver the letter and discuss its contents with the reporting entity's CEO, owner and/or member of its board of governance as the foundation for engagement planning. This discussion should focus first on the entity's applicable financial reporting framework and can be one of the primary sources for discovering potential misstatements, fraud or illegal acts and other business or environmental circumstances.

  1. Use of Client Assistance or Paraprofessionals

Auditors should use client assistance to the maximum extent possible on every engagement. When client personnel are unavailable, the auditor may consider firm or outside paraprofessionals to perform accounting services and clerical work in connection with the engagement. (You may download a "Possible Client Assistance" checklist.)          

  1. Planning for Proper Workspace:

The engagement leader has responsibility for arranging adequate workspace before the fieldwork begins. Poor lighting, lack of adequate heat or air conditioning, desks or tables that are too small or work locations that are long distances from client accounting personnel are examples of situations that hinder the efficient completion of an engagement.

  1. Assignment of Staff Personnel:

A basic element of a good quality control system is assigning personnel to engagements and tasks that are commensurate with their experience. A primary audit response to risk at the financial statement level is to assign experienced staff persons to the high-risk areas or provide more supervision to lesser experienced persons. Assigning the right people to engagements also helps complete engagements in the minimum amount of time. SQCS No. 8, effective January 1, 2012, requires CPA firm documentation of this element of quality control.

  1. Target Dates

Setting target dates during planning is the first step to achieving timely engagement completion. These target dates should also become the input to the CPA firm's staff scheduling system.

  1. Use of Specialists or Consultants

Auditors should consider using outside specialists or consultants whenever performing auditing procedures in circumstances outside the expertise of CPA firm personnel. Such circumstances may include actuarial computations for pension funds, questions of law, observations of physical inventories of specialized products or materials, required tests of client accounting software, and complex accounting and auditing problem situations. When the auditor outsources any services in connection with an engagement, the engagement letter should contain a paragraph notifying the client. The auditor is also required to obtain a confidentiality agreement from the person or organization performing outsourced services and having access to the reporting entity's financial information.

  1. Electronic Auditing Opportunities

Trial balance and financial statement preparation software, electronic practice aids, file container software, spreadsheets, word processing software, document scanners and data extraction software should be used to the maximum extent practical on all engagements. This section should list the specific, planned applications for discussion at the engagement team meeting.

  1. Audit Budgets

The audit budget should be prepared during engagement planning. The budget should be based on circumstances, not fees. The budget should be summarized here or cross-referenced to other documentation for discussion during the engagement team meeting.

For those who want further information, the applicable link on the left side of my home page, www.cpafirmsupport.com, can be used to register for numerous webcasts focusing on the planning, performance and completions phases of audit engagements.

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