Now that your firm has decided to move ahead with client engagement, the next major step is to plan the audit. For this milestone, you will develop an audit plan that is supported with appropriate auditing standards. You will also conduct a preliminary risk assessment to determine materiality.
For the final project, you will work through components of a case study in which you will assume the role of a lead auditor at Willis & Adams. Your firm has been approached by EarthWear Clothiers to perform an audit. In your role as lead auditor, you will evaluate internal and external factors to determine client engagement, develop an audit plan, determine recommendations for improving internal controls, and communicate the audit opinion. For this milestone, you will develop the audit plan.
Prompt
Your organization has decided to move forward with the audit of EarthWear Clothiers. As lead auditor, you will select one of EarthWear Clothiers’ business objectives and an audit plan of their financial statements. The business objectives are:
- Expand further into the global market by launching internet sites into South American countries
- Increase customer base by introducing a new extreme sports product line to attract younger consumers
- Reduce pricing to be more competitive in the marketplace by seeking out additional vendor relationships to lower costs of goods sold
- Implement an employee stock purchase plan to increase productivity and employee morale
- Reduce delivery and distribution time of products and services by adding additional warehouse locations
Use the information from your preliminary review and auditing standards to support your plan. Using your selected business objective, an audit plan of the organization’s financial statements that addresses the following: business risks, management assertions, audit risk, internal controls, and the effect on audit procedures. Support your plan with the appropriate auditing standards. Also, determine materiality by conducting a preliminary risk assessment, and explain which factors were used in making this determination. You can obtain the ICFR and materiality guidelines on the Willis & Adams website. (Clicking the link initiates an automatic download of a ZIP file. You will need a utility to unzip the archive before you can use it as intended.)
Specifically, the following critical elements must be addressed:
- Planning the Audit: Select one of the organization’s business objectives and an audit plan of the organization’s financial statements. Use the information from your preliminary review and auditing standards to support your plan.
- Using your selected business objective, an audit plan of the organization’s financial statements that addresses the following, and support each with the appropriate auditing standards:
- Business risks
- Management assertions
- Audit risk
- Internal controls
- Effect on audit procedures
- Determine materiality by conducting a preliminary risk assessment, and explain which factors were used in making this determination.
- Using your selected business objective, an audit plan of the organization’s financial statements that addresses the following, and support each with the appropriate auditing standards:
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