How to Pass the ACA Audit and Assurance Module: Mastering Audit Planning

Planning is an essential component of any successful audit and understanding it is vital for the ACA Audit and Assurance module. Here’s a detailed breakdown of key elements you need to know for exam success.

The Need to Plan

Purpose of Planning

• Planning ensures audits are efficient and effective, preventing wasted time and overlooked critical tasks.
• It is essential for accurate conclusions and high-quality engagements.
• Required under ISA (UK) 300, which mandates effective audit planning.

Overall Audit Strategy and Audit Plan

Key Planning Documentation

• Overall Audit Strategy: Outlines key elements including materiality, risk assessment, audit approach, expert involvement, timing, team structure, and budget. This strategy is tailored to each client and updated as needed.
• Audit Plan: Details the audit procedures to fulfil the strategy and is updated as the audit progresses.

Automating the Audit Process

• Benefits:
  • Automation streamlines audit planning and fieldwork, ensuring comprehensive and efficient reporting.
  • Customisation is required to adapt automated processes to client-specific needs.

Materiality

Definition of Materiality

• Information is deemed material if its omission or misstatement could influence the economic decisions of users.
• Materiality depends on the size and nature of items or errors.
• Performance materiality is set below overall materiality to catch smaller errors and reduce the risk of undetected misstatements.

Professional Judgement

• Applying professional judgement is critical when setting materiality and assessing misstatements.

Sustainability Impact

• Climate-Related Risks are increasingly considered in materiality due to investor focus.
• Double Materiality: This concept includes assessing both financial risks and the company’s impact on the environment and society.

Analytical Procedures

Purpose

• Used to identify potential risks and gain an understanding of the entity and its environment.
• These procedures are crucial for risk assessment and provide valuable insights.

Going Concern

ISA (UK) 570

• Auditors must assess material uncertainty and whether the going concern basis is appropriate.
• This standard has become more stringent post-2019 following corporate failures.

Management’s Role

• Management must justify the going concern assumption in the financial statements.

Auditor’s Procedures

• Analyse cash flows, forecasts, and financial agreements.
• Review relevant documents and discuss assumptions with management.
• Perform further procedures if there are doubts about going concern.

Sustainability Impact

• ESG Factors can influence the organisation’s going concern status, affecting issues like financing and supply chains.
• Examples include:
  • Borrowing difficulties linked to ESG-related financing.
  • Climate impact on raw materials affecting supply continuity.

Risk Factors

Overview

• Identifying and assessing key risks is a fundamental part of audit planning.

Management Override

• A major risk where management could manipulate accounting records.
• Audit Procedures:
  • Test journal entries and accounting estimates.
  • Examine significant and unusual transactions.

Journals

• High-risk area for fraud and errors.
• Audit Focus:
  • Review for unusual accounts, late postings, and rounded amounts.

Revenue Recognition

• Common risk of misstatement.
• Audit Procedures:
  • Employ analytical procedures, cut-off tests, customer confirmations, and observation of despatch processes.

Audit Data Analytics (ADA)

• Leveraging big data enhances audit quality and identifies patterns and anomalies.

Cloud Computing

Definition

• On-demand access to shared computing resources.

Risks

• Loss of control over data and reliance on a provider’s security measures.

Cyber Security

Definition

• Protection of systems and data in cyberspace.

Cyber Risks

• Include human threats, fraud, sabotage, malware, and denial-of-service attacks.
• Audit Focus:
  • Ensure cyber risks are considered in all business activities.

Challenges and Recommendations

• Appoint a Chief Information Security Officer (CISO) to facilitate effective communication.
• Clearly assign roles for managing cyber risks at board level, especially in SMEs that may rely on third parties.

IT Security Controls

Key Aspects

• Prevention, detection, deterrence, recovery, correction, and threat avoidance.

Combating IT Risks

• Use business continuity planning, secure system development, physical security, compliance, personnel security, and comprehensive security policies.

Next Steps

Understanding the key aspects of audit planning is essential for passing the ACA Audit and Assurance module. Ensure you grasp these principles and integrate them into your exam practice. For tailored resources and further guidance, check out our subscription plans here. Equip yourself with the tools needed to succeed and excel in your studies!