define materiality and performance materiality

application in fiancial reporting and audit

evaluate business risk

evaluate audit risk

evaluate risk of material misstatement

discuss and demonstrate the use of anyalytical procedure in planing state of audit

result of planning procedure determing the relevent audit stratege

recognize maters that are not relevant to the planning assignment

ethics and integrity

business insight (acumen)

building relationship

communication

leadership

problem solving and decision making

always have behaviour in 

professional scepticism

and flexibility

audit stratege is the key document in planning process, the contents include:

1. overall audit approach  

• financial report framework
• industry report
• knowlesge of business
• service organization
• third parties use of  CAATs
• internal control
• availability of client staff

2. reporting objectives ,timing and communication

• timetable
• communication with client, team, and third parties

3. significant factors, preliminary engagement activities

• materiality
• risk assessment
• internal control
• need for scepticism
• change in laws and regulations
• significant development

4. nature, timing and extent of resource

• selection of audit team
• budget

plan is far more detail about each approach in the stratege:

what, who, how much work (big sample), when 

risk assessment techniques:

• making enquires of knowledge people
• conduct analytical procedures on financial statement number
• observing things at the client
• inspecting document

analytique analysis:

compare with related piece of financial information  

compare with historic data

compare with budget

compare with other non fiancial information

main ratios will require to calculate 

entity: its pressure and encentive, its governance, its key customer and suppliers

environment: industry, complex or new laws and regulations, competition

applicable financial report framework

interna control effevtiveness of internal control, system of internal control, segregation of duties

material: ommision or mistatement may influence the decision of the user

guidance for materiality:

0.5-1% of turnover

1-2% of total assets

5-10% of profit

also need to consider the nature and relevent of the error, if the item is materiality or not is based on prfessioanl judgement.

performance materiallity: aggregate exceed the materility as a whole

material misstatement include:

1. incorect number

2. missing or inadaquate disclosure

3. wrong basis of preparation

audit risk=inherent risk * clients control risk * detection risk

inherent risk is the error make in prepare the statement.

control risk is the internal control fail to detect and correct the error

inherent risk * control risk    form the materiallity misstatement

and the audit detect risk(procedure deficiency ) will cause the total audit risk

business is scepticism concerning:

• fraud  /money laudering
• complex of accounting 
• mamagement judgement and mamagement(internal control)

audit planning:

1. characteristics of the engagement: 

• know your client: industry, list or not, which accounting standard are applied with, internal control and internal audit reliability, if any third parter or external expert are needed
• FR framework
• knowledge of the industry
• knowledge of the business
• internal audit services
• organisation
• use of CAATs 
• availability of staff of clents

2. reporting obnjectives, things and communication

• works cover the charactics
• time table, schedule, internal dealine
• third parties schedule and requirement , not delays whole schedure, especially valuer...
• communication with clients, team, and 3nd parties

3. sigbificant factors, preliminary engagement activities

• show work on risk assessment, materiality calculation, view of clients internal control
• ongoing clients, highlight siginificant changes since prior year
• materiallity
• risk assessment
• internal controls
• need for scepticism
• changes in laws and regulation, policies and major estimation\
• sigificant development

4. nature, things and extent of resources

• budget
• context of works
• extend of third parties not excess budget

audit strategy which should be coved in planing overall : 

audit plan: what specific work on each area, who, how much, when

control activities comprise segregation of duties, reconcillication, authourisation, physicial or logical controls, and verification

applicable financial reporting framework: key area includes: revenue recognisation, financial instruments, foreign currency transaction, unusual or infrequecy transactions

environment: industry, laws and regulation, competition, revenue generation, net relisable value of inventory, provision on penality

entity: incentives or pressures, government, revenue, receivable, purchases and payables on major customer or supplier