Auditors, the audit plan, the audit programme and internal control

The audit plan helps obtain sufficient appropriate evidence for the circumstances, keep audit costs down, helps avoid misunderstandings.  The audit plan requires knowledge of client's business, development of audit strategies (who, when and how), preparation of the audit programme of testing of controls and transactions.  

Getting it wrong - Companies can exhibit 5% stock price decline following announcement of accounts restatement; decline 20% if due to fraud.  Trust but verify - Shareholders expect an objective third party to provide assurance that the information is accurate not to identify fraud.  

In practice Audit committee effectiveness likely depends not only on qualification but engagement. Objective is to improve earnings quality.  Auditors identify items that could be materially misstated, design and execute tests to determine whether such misstatements have occurred.  

Auditors generally test assertions accuracy in three areas — transactions and events, account balances, presentation and disclosure.  Auditors identify items that could be materially misstated, design and execute tests to determine whether such misstatements have occurred.  

Auditors judge their work scope and findings against materiality of uncorrected errors which make statements of income and assets inaccurate.  

Audit materiality is not just a number crunch of assets and income. Failure to understand the many qualitative factors can cause restatement.  

When audit risk is high, auditors carry out more extensive testing, less reliance on the work of others and less testing of controls. So besides regulatory requirements investment in and maintenance of internal control materially impacts the quality of financial statements

1. ISA300 https://www.frc.org.uk/Our-Work/Publications/APB/ISA-300-Planning-an-audit-of-financial-statements.pdf