Question

Problem 2

The eight major steps in planning audits are:

1. Accept client and perform initial planning
2. Understand the client’s business and industry
3. Perform preliminary analytical procedures
4. Set preliminary judgment of materiality and performance materiality
5. Identify significant risks due to fraud or error
6. Assess inherent risk
7. Understand internal control and assess control risk
8. Finalize overall audit strategy and audit plan

Required

Match each audit activity with one of the steps numbered 1 to 4 above

AUDIT ACTIVITIES	RELATED PLANNING PROCEDURE
1.   Review accounting principles unique to the client’s industry.
2.   Determine the likely users of the financial statements.
3. Evaluate the appropriate financial statement measures for determining amounts likely to be considered material by users of the financial statements.
4.   Identify whether any specialists are required for the engagement.
5.   Send an engagement letter to the client.
6.   Tour the client’s plant and offices.
7.   Specify materiality levels to be used in testing of accounts receivable.
8.   Compare key ratios for the company to industry competitors.
9.   Review management’s risk management controls and procedures.
10. Identify potential related parties that may require disclosure.

Answer 1

Answer -

	AUDIT ACTIVITIES	RELATED PLANNING PROCEDURE
1.	Review accounting principles unique to the client’s industry.	Understand the client's business and industry.
2.	Determine the likely users of the financial statements.	Accept client and perform initial planning.
3.	Evaluate the appropriate financial statement measures for determining amounts likely to be considered material by users of the financial statements.	Set preliminary judgment of materiality and performance materiality.
4.	Identify whether any specialists are required for the engagement.	Accept client and perform initial planning.
5.	Send an engagement letter to the client.	Accept client and perform initial planning.
6.	Tour the client’s plant and offices.	Understand the client’s business and industry.
7.	Specify materiality levels to be used in testing of accounts receivable.	Set preliminary judgment of materiality and performance materiality.
8.	Compare key ratios for the company to industry competitors.	Perform preliminary analytical procedures.
9.	Review management’s risk management controls and procedures.	Understand the client’s business and industry.
10.	Identify potential related parties that may require disclosure.	Understand the client’s business and industry.