Audit Planning. The first section will discuss the key issues relating to audit planning, business risk and audit procedures and the second section will discuss the aspects of GB Food Ltd that need to be understood by BBK & Co audit team

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This coursework will be divided into two sections. The first section will discuss the key issues relating to audit planning, business risk and audit procedures and the second section will discuss the aspects of GB Food Ltd that need to be understood by BBK & Co audit team, additionally  we will describe the audit procures in respect of the amount capitalised and the amount recognised as an expense.

Section 1;

An audit can be referred to a systematic process of objectivity obtaining and evaluating evidence regarding assertions about economic actions and events to determine the degree of correspondence between these assertions and established criteria, and communicating the results to interest of the users. “The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements this is achieved by the expression of an opinion by the auditors on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. In the case of most general purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair value view in accordance with the frameworks”. There are three main stages of an audit; the planning, performing and reporting stage. However, this section will focus on the planning stage of an audit by examining the key issues relating to an audit plan, business risks and audit procedures in regards to the International Standards on Auditing, we will explain the main aspects required to understand client’s business and the procedures needed to gain such understanding will be explained further.

Auditors can only begin with the planning stage once the official expectance or continuation decision made by the client has been obtained. Only then they can commence performing their statutory obligations. The planning stage permits the auditors to focus their attention on high risks areas which enables them to decrease the audit risks. Through the understanding of the entity and its environment, auditors will identify and assess the risks of material misstatement by developing an audit strategy. ISA 315 provides guidance on the following relevant aspects of the entity and its environment that necessitate to be understood during the planning stage; these are explained in the following lines;

  • The relevant industry, Regulatory and other external factors including the applicable financial reporting framework.”  

According to ISA315, auditors need to understand their client’s industry given that every industry has specific risks generated by the nature of the business, Industry regulation and accounting conventions. By understanding the common risks to all companies in a particular industry, auditors can recognise whether there are any inherent risks in their client’s company. Given the Industry level, they will gain an overall understanding on the client’s position. Auditors are concerned with the status of their client within the industry, the comparison between the client and their competitors and the pressure of the competition level at that industry. They will assess their client’s status against its competitors and will focus on the issues that affect the demand by taking into consideration the level of demand for products and service that delivered by the companies. At the regulatory level, Auditors will gain an understanding on the effect that the government regulations have on their client’s business. Consequently, they will need to understand the following issues in order to avoid material misstatement; Accounting principles of the company, taxation, environment requirements and the laws and government policies. Auditors are also concerned with the financial reporting framework consequently, they will assess whether the applicable financial framework of the entity has been properly applied on the financial statements with regard to the nature of the entity, its objective and what is required by law or regulation. From an External point of view, auditors need to understand the external drivers that influence the client’s industry such as politic or economic factors as auditors are concerned with ability of their clients to survive to economic and politic pressures.

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  • The nature of the entity and its accounting policies  

In accordance to ISA 315, the required understanding of the nature of the entity and its accounting policies cope with the core of the entity. Auditors need to understand what type of operation, how the company is financed and the appliance of accounting policies. The business operations include the source of revenue that the company generates through; services, dealers or banking for example. To get the information they will look at the main customers, significant supplies of goods and services (for example long term contract) or transactions with related ...

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