You are the manager responsible for the audit of ABC Company, which has a turnover of KShs 750 million. The company has been audited by your firm for a number of years and this is the second year you have been responsible as manager for the audit. However, owing to your responsibilities for other audits you are only intending to make periodic visits to the company during the course of the audit and you will not be involved in any of the detailed audit work. Required; State the matters you would consider in planning the audit, prior to the commencement of the detailed audit work

Matters to consider when planning the audit

In planning the audit the auditor will need to consider the following:

1. Understanding the accounting and internal control systems
The auditor‘s cumulative knowledge of the accounting and in ternal control systems and the relative emphasis expected to be placed on tests of control and substantive procedures.
2. Reviewing matters raised in the previous year‘s audit, which may have continuing relevance in the current year. This is done by reviewing previous year‘s working papers. The auditor will be able to identify areas noted as having weak controls or specific accounting problems. Attention should be paid to such areas in the audit plan.
3. Assessing the effects of any changes in legislation or accounting practice affecting the financial statements of the company. The audit plan should include a review of these changes and whether the client has complied.
4. The auditor should consult with management and staff of the organization about current trading circumstances and any significant changes in the business carried on and the management of the enterprise. E.g. changes in management might weaken the internal control system.
5. Identify any significant changes in the clients accounting procedures such as installation of a new computer information system. Changes to a computerized system could result in weak controls.
6. Conditions requiring special attention such as the existence of related parties.
7. Consider any current or impending financial difficulties, which could face the company.
E.g. shortage of raw materials or failure to raise working capital.
8. The auditor should check the nature and timing of reports and other communications with the client so that the audit plan accommodates such timings e.g. he should consider the dates of the annual general meeting, stock taking, dates when management reports are available.
9. Set materiality levels for audit purposes and in particular identify areas with material transactions, which call for more audit work.
10. The assessment of internal audit department and level of reliance to be place on its work. The auditor should also determine the number of audit staff required, experience and special skills required and the timing of the audit visits.

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