This document provides an overview of the audit process from start to finish. It discusses prospecting for new clients, writing proposals, accepting engagements, planning the audit which includes assessing risks, executing audit procedures, and reporting on the results. Planning involves developing an audit strategy, establishing materiality, understanding the client's business and risks. Execution includes tests of controls, substantive procedures, and evaluating audit evidence. Reporting covers forming an opinion, communicating with management, and documenting the audit findings. The document also covers audit definitions, evidence, documentation standards, and how materiality and risk affect the audit.

1. ASSURANCE ENGAGEMENT
TUTORIAL
Anthony Shitandi
Ababsy & Associates

2. We will talk about
1. Prospecting
2. Proposal writing & presentation
3. Engaging a client
4. Planning for the Engagement
5. Executing the Engagement
6. Completing the Engagement
7. Nuts & Bolts

3. 1.0 Prospecting
• Tendering following advertisement
• Referral from existing client
• Walk ins
• Partners/ CEO’s Social Networks

4. 1.0 The Audit Process: Preparation

5. 2.0 Proposal Writing and Presenting
Proposal Writing To Include;
•Firms Profile (Emphasizing Capabilities and core competencies
•Demonstrations of Firms understanding of clients needs
•Similar Assignments undertaken by the firm
•Proposed Engagement Methodology
•Proposed Team
•Proposed Fees
Proposal Presentation To Provide for;
•Introduction of Senior Management Team
•Introduction of The Firm to the client
•Discussion of the Proposal
•Other Firms products the prospect might be interested in
•Questions & Answers Session
•Vote of thanks

6. 3.0 Acceptance and Continuance of
Client Relationships
Upon being hired by the prospect as his
Auditor, and acceptance by the firm to
have the prospect as his client, the
following should be done;
1. Interview with Predecessor Auditor(s)
2. Review existing records
3. Assess clients Audit-ability
4. Engagement Letter

7. 3.1 Audit Acceptance
– Audit accepting and agreeing on terms of reference/
engagement is the responsibility of an engagement
partner.
– He oversees preparing, issuing, and revising engagement
letter according to the requirements of ISA 210. The scope
and performance of work is covered in the letter along
with all important matters relating to the engagement.

8. 4.0 The Audit Process: Planning

9. 4.0 Planning for the Assignment
– An auditor should plan an audit in a manner that
helps him to finish the engagement in an efficient
and effective manner.
– A planning file is prepared
before an audit starts which
is reviewed by the top management of an
accounting firm. It reflects all aspects of an audit
engagement both financial and non-financial.

10. 4.0 Planning for the Assignment Cntd.
– The auditor should develop an overall strategy for
the audit engagement (ISA 300).
– Establishing objectives, scope, extent and critical
aspects of an audit job.
– The auditor should develop a plan so as to reduce
audit risk to an acceptably low level. (ISA 300).
– The identification of sources of audit evidence and
its relationship to critical audit objectives.

11. 4.0 Planning for the Assignment Cntd.
– Establishing materiality levels/standards, sample size,
and sampling techniques (ISA 320 & 530).
– Establishing materiality and evaluating whether the
judgment about materiality remains appropriate as
the audit progresses.
– The auditor should make inquiries of those charged
with governance to determine whether they have
knowledge of any actual, suspected or alleged fraud
affecting the company under audit.

12. 4.0 Planning for the Assignment Cntd.
– Documenting the nature, timing & extent of risk
assessment procedures sufficient to assess the
risks of material misstatements. (ISA 315)

13. 4.01 Planning for the Assignment
– perform following risk assessment procedures to
obtain an understanding of a company and its
environment, including its internal control:
• Inquiries of management
• Analytical procedures
• Observation & Inspection (ISA 315)
– Analyzing the consistency of financial and related information by
substantive analysis.
– Designing, documenting, and re-evaluation of an audit plan.
– Evaluating and documenting management information system details.

14. 5.0 The Audit Process: Execution

15. 5.0 Performance and Execution of Audit Work
– Audit team performs various audit procedures
and techniques for obtaining audit evidence of
such quantity that minimizes audit risks to
acceptable levels.
– An auditor should document a company’s
selection and application of accounting policies
and review them for their appropriateness with
the business-line and ensure consistency with the
applicable financial reporting framework of the
industry. (ISA 315).

16. 5.0 Performance and Execution of Audit Work
– Evaluating and documenting design of accounting
and internal control system and determining the
extent of reliance to be placed on it. (ISA 315)
– Designing interim audit program on an initial
assessment of internal controls system.
– An auditor should obtain understanding of how a
company has responded to risks arising from IT
(ISA 315).
– Identifying and documenting the internal controls
working in the system.

17. 5.0 Performance and Execution of Audit Work
– Performing compliance tests on internal controls.
– Ascertaining the results of compliance tests and
documenting the risk in each area separately.
– Recommending additional controls to mitigate the
risks identified with the existing controls.
– Writing the final audit programme in the light of
interim audit findings and audit objectives set at
the planning stage.
– Applying the substantive analysis and tests in
accordance with the final audit programme.

18. 5.0 Performance and Execution of Audit Work
– Determining adequacy of substantive tests after the initial
results start coming.
– Devising additional audit tests for risks identified at the
later stages.
– Review the audit work to ensure
sufficiency and appropriateness of
audit evidence and overall work quality.
– At planning and performing stages of work, an auditor is
required to ensure the appropriateness of the going
concern assumptions in the preparation of financial
statements (ISA 570).

19. 5.0 Performance and Execution of Audit Work
– The auditor should obtain audit evidence that
management acknowledges the responsibility for
the fair presentation of financial statements in
accordance with applicable financial reporting
framework, and has approved the
financial statements (ISA 580).
– If management refuses to provide
a representation that the auditor considers
necessary the auditor should express a qualified
opinion or disclaimer of opinion (ISA 580).

20. 5.0 Performance and Execution of Audit Work
– The auditor should perform audit procedures designed to
obtain sufficient and appropriate audit evidence regarding
the identification and disclosure by management of
related parties and the effect of related party transactions
that are material to the financial statements (ISA 550).
– An audit process must be efficient and effective in fulfilling
the objectives of an audit engagement. An auditor must
minimize the risk of not finding material misstatements in
account balances and at the same time complete the audit
work on agreed time period.

21. 5.0 Performance and Execution of Audit Work
– The auditor should obtain sufficient appropriate
audit evidence about compliance with those laws
and regulations generally recognized by the
auditor to have an effect on the determination of
material amounts and disclosures in the financial
statements. Further, the auditor is required to
have sufficient understanding of these laws and
regulations in order to consider them when
auditing the assertions related to determination
of the amounts to be recorded and disclosures to
be made (ISA 250).

22. 6.0 The Audit Process: Reporting

23. 6.0 Audit Reporting and Forming of Audit Opinion
– Reporting results of audit procedures is the final
stage of an audit work.
– Manager and engagement partners finalize the
process of audit reporting.
– Summarizing the results of audit procedures i.e.
accounting adjustments, management letter etc.
– Reviewing the sufficiency and appropriateness of
audit evidence gathered during the audit process.

24. 6.0 Audit Reporting and Forming of Audit Opinion
– Reviewing subsequent events, going concern
status, management representations, and truth
and fairness of financial statements.
– Identifying and recommending appropriate action
on weaknesses and findings surfaced during the
audit process.
– Discussions with client management on all issues
highlighted during the audit work and
documenting their feedback.

25. 6.0 Audit Reporting and Forming of Audit Opinion
– The auditor should inform those charged
with governance of those uncorrected
misstatements noted by the auditor during
the course of audit that were considered by
management as immaterial to the financial
statements taken as whole.
– Summarizing audit results that highlight the audit
procedures applied, audit observations and management
comments on each observation.
– Forming an audit opinion after audit issues are cleared by
client management (ISA 700).

26. 6.0 Audit Reporting and Forming of Audit Opinion
– Communicating the final draft to client
management.
– Preparing a final audit report with or without
modified opinions.
– Attending AGM for responding to any audit
related queries of members.
– Determining the potential effects of audit report
modification due to subsequent events (if any),
(ISA 560).

27. 6.0 Audit Reporting and Forming of Audit Opinion
– Documenting audit points for next years’ audit.
– Documenting the follow up results of the audit.

28. 7.0 Audit Definition
• Auditing is a systematic examination of books
and records of a business or other
organization in order to ascertain or verify and
to report upon the facts regarding its financial
operations and the results thereof.

29. 7.1 Audit File
• This is a file presented to the Auditor
containing relevant information of the period.
The File Comprises the records that the
Auditor will be examining during the Audit.

30. 7.11 Contents of Audit File
• TB
• Draft P&L
• Draft Balance Sheet
• Statement of Changes in Equity
• Cash book
• Payroll
• Bank Statements
• Bank Reconciliations
• Management Reports
• Sales Reports
• Expense Analysis
• Cheque Stamps
• Invoices & Receipt Books
• Asset Register
• Stock Sheets/ Stock Reconciliations
• VAT 3 Returns

31. 7.12 Audit Evidence Decisions
• 1. Which audit procedures to use
• 2. What sample size to select for a given
procedure
• 3. Which items to select from the population
• 4. When to perform the procedures (timing)

32. 7.2 Audit Program
• It includes a list of the audit procedures the
auditor considers necessary.
 Sample sizes
 Items to select
 Timing of the tests
Most auditors use computers to facilitate the preparation of audit programs.

33. 7.3 Persuasiveness of Evidence
• Two determinants
 Appropriateness
 Sufficiency

34. 7.4 Characteristics of Reliable
Evidence
1. Independence of provider
2. Effectiveness of client’s internal controls
3. Auditor’s direct knowledge
4. Qualification of individuals providing the
information
5. Degree of objectivity
6. Timeliness

35. 7.5 Persuasiveness and Cost
• In making decisions about evidence for a
given audit, both persuasiveness and cost
must be considered.
• The auditor’s goal is to obtain a
sufficient amount of appropriate
evidence at the lowest total cost.

36. 7.6 Types of Audit Evidence
• 1. Physical examination
• 2. Confirmation
• 3. Documentation
• 4. Analytical procedures
• 5. Inquiries of the client
• 6. Recalculation
• 7. Reperformance
• 8. Observation

37. 7.6 1 Physical Examination
• It is the inspection or count by the auditor ofIt is the inspection or count by the auditor of
aa tangible assettangible asset..
• This type of evidence is most often associatedThis type of evidence is most often associated
with inventory and cash.with inventory and cash.

38. 7.62 Confirmation
Balance Sheet ItemBalance Sheet Item SourceSource
Cash in bank Bank
Accounts receivable Customer
Accounts Payable Supplier/ Creditor
Advances from customers CUstomer
Shares outstanding Registrar and transfer agent
Insurance cover/Contingent liabilities Insurance company/ client’s legal
counsel
Shares outstanding Registrar and transfer agent

39. 7.63 Documentation

40. 7.64 Analytical Procedures
• Understand the client’s industry and business
• Assess the entity’s ability to continue as a
going concern
• Indicate the presence of possible
misstatements in the financial statements
• Reduce detailed audit tests

41. 7.65 Inquiries of the Client
• It is the obtaining of written or oral
information from the client in response to
questions from the auditor.

42. 7.66 Recalculation
• It involves rechecking a sample of calculations
made by the client.

43. 7.67 Reperformance
• It is the auditor’s independent tests of client
accounting procedures or controls that were
originally done.

44. 7.68 Observation
• It is the use of the senses to assess client
activities.
• The auditor may tour the plant to obtain a
general impression of the client’s facilities.

45. 7.7 Audit Documentation
• Purposes of audit documentation
• Ownership of audit files
• Confidentiality of audit files

46. 7.71 Supporting Schedules
• Analysis
• Trial balance
• Reconciliation of amounts
• Tests of reasonableness
• Summary of procedures
• Examination of supporting documents
• Informational
• Outside documentation

47. 7.72 Preparation of Audit
Documentation
 Each audit file should be properly identified
Documentation should be indexed and
cross-referenced
Completed documentation must clearly
indicate the audit work performed
It should include sufficient information
 It should plainly state the conclusions
reached

48. 7.3 Audit Risk & Materiality
• Materiality relates to the precision required in
the audit of financial statements of a
company. Risk relates to the confidence that
the audited financial statements are free from
material misstatements.
• Audit risk is the risk that the auditor may
unknowingly fail to qualify his opinion on
financial statements that are materially
misstated.

49. 7.3 1 Audit Risk
• Audit risk is the result of the auditors' findings,
conclusions, recommendations, or assurance
that may be improper or incomplete, as a
result of factors such as evidence that is not
sufficient and/or appropriate, an inadequate
audit process, or misleading information due
to misrepresentation or fraud.

50. 7.3 1 Audit Risk Cntd.
• Factors such as the time frame, complexity, or
sensitivity of the work; size of the program in
terms of monetary amounts; adequacy of the
audited company's systems and processes to
detect in-consistencies, significant errors, or
fraud; and auditors' access to records, also
impact audit risk.

51. 7.3 1 Audit Risk Cntd.
• Audit risk includes the risk that auditors’
procedures will not detect a mistake,
inconsistency, significant error, or fraud in the
evidence supporting the audit.
• The assessment of audit risk involves both
qualitative and quantitative considerations.
The risk related with audit can be reduced but
cannot be eliminated completely because of
selective work.

52. 7.3 1 Audit Risk Cntd.
• Audit risk can be reduced by taking actions
such as increasing the scope of work; adding
experts, additional reviewers, and other
resources to the audit team; changing the
methodology to obtain additional evidence,
higher quality evidence, or alternative forms
of corroborating evidence; or aligning the
findings and conclusions to reflect the
evidence obtained.

53. 7.3 1 Audit Risk Cntd.
• The auditor minimizes the audit risk to the
level where his opinion on the financial
statement is acceptable to all users. The
auditor plans audit work with lowest
perceived level of audit risk. The lowest level
of audit risk is not quantified rather it is based
on his judgment about the records prepared
by the company.

54. 7.3 2 Audit Materiality
• Overall assessment at financial statement
level (rate high, low, medium)
• Assessment the account balance or class of
transactions level
• Materiality is important to auditors because it
has direct impact on the work to be done by
them.

55. Important note:
”Information is material if its omission or misstatement
could influence the economic decisions of users taken
on the basis of the financial statements. Materiality
depends on the size of the item or error judged in the
particular circumstances of its omission or
misstatement. Thus, materiality provides a threshold
or cut-off point rather than being a primary
qualitative characteristic which information must
have if it is to be useful.”

56. 7.33 bases of materiality are:
Most commonly used bases of materiality are;
• Total Assets
• Net Income
• Net Assets
• Current Assets
• Sales
• Gross Margin

57. 7.3 3 Audit Materiality ctnd
• The percentage approach to define materiality for
assets and profits must be dealt with care because
underlying assumptions vary from company to
company and sector to sector. An item may be
material because of its nature, value and impact.
• The assessment of materiality at planning stages
should be based on the most recent and reliable
financial information.

58. 7.3 4 Points about Materiality:
• It is an expression of the relative significance
of a particular matter in the context of
financial statements as a whole.
• It is based on judgment of an auditor.
• It can be changed as audit work progresses
depending on the results of initial procedures.
• Materiality is related with the true and fair
view concept.

59. 7.3 4 Points about Materiality cntd.
• A matter is material if its omission or misstatement
would reasonably influence the decisions of the
users of the financial statements.
• Materiality has both qualitative and quantitative
aspects.
• Materiality defines the nature, timing and extent of
work required by the auditor in order to express his
opinion on the financial statements.

60. 7.01 Basic statutory audit
• The basic statutory audit consists of two tasks:
– To check that the accounting database effectively
picks up all the company’s activities and is correct
– To check that the financial statements are a
correct representation of the accounting
database, use appropriate accounting policies and
are a reasonable representation of the company’s
real state

61. 7.01 Basic statutory audit
• The external auditor signs a public report
– a standard attestation regarding the representational
fairness of the financial statements
• The public report may be accompanied by a
‘management letter’
– Directed to company management (not published)
– Comments on the audit findings, highlights potential areas
of weakness and makes recommendations

62. Coming Soon…..
• Compliance & Substantive procedures

63. Coming Soon…..
• Documentation: Audit Programme, Audit
Working Papers & Audit Note book

64. Coming Soon…..
• Audit Risk: Inherent Risk, Control Risk &
Detection Risk

65. Coming Soon…..
• Auditor Reports: Unqualified, Qualified,
Disclaimer, Adverse

66. Coming Soon…..
• Guidance on Independence during
engagement

67. Coming Soon…..
• Audit Documentation requirements

68. Coming Soon…..
• Documentation for Specific Matter

69. Coming Soon…..
• Audit Documentation Review Process

70. Coming Soon…..
• Retention & Subsequent Changes to Audit
Documentation
&
MUCH... MUCH... MUCH... MORE