Planning and Analytical Procedures

1
Planning and Analytical Procedures

• Chapter 8

2
Planning Considerations

• Acceptable Audit Risk
• Knowledge of Industry
• Inherent Risk
• Client Acceptance

3
Client Acceptance

• Standing in the community
• Financial stability
• Need for audit
• SAS 84 Communications with Predecessor Auditor
• Continuing clients should be scrutinized as well

4
Client Engagement Letters

• SAS 83 Must document agreement. Not required to
  be a letter
• 1136 Tenants
• Specify services provided, outcomes
• Outline responsibilities on both sides
• Timelines and budget
• Specify IC if SarbOx applies
• Review example. P. 198

5
Staff Assignment

• GAAS Adequate training and proficiency
• Necessary to develop budget and fee
• Outside specialists
• Internal auditors

6
Understanding the Industry

• Key players in the industry
• Common transactions and structures
• Industry news
• Industry ratios
• Volatility
• Diversification

7
Understanding the Client

• Use of IT and EC/B2B
• Major customers and suppliers
• Global operations or joint ventures
• Key personnel
• Tour plants and offices
• Identify related parties
• Objectives and strategies of client
• Management incentives

8
Corporate Governance

• Organizational structure
• Corporate charter and bylaws
• Code of Ethics
• Do they have one? If not, why not?
• To whom does it apply?
• Activities of Board of Directors
• Minutes of meetings
• Audit committee
• Whistleblowing mechanisms

9
Identification of Key Risks

• Business risks
• Mitigating controls
• Management is primary source of info
• Must design disclosure controls to keep alert to
  risks
• SarbOx Management must disclose key risks to
  auditors

10
Analytical Procedures

• Liquidity ratios
• Cash ratio
• Quick / acid-test ratio
• Current ratio
• A/R turnover or days in receivables
• Inventory turnover or days sales in inventory
• Solvency ratios
• Debt to equity
• Debt to assets
• Times interest earned

11
More Analytics

• Profitability ratios
• Gross margin
• Operating margin
• Profit margin
• ROA
• ROE
• Vertical analysis
• Trend analysis

12
AP Comparisons

• Compare to industry
• Compare to last year
• Compare to client expectations
• Compare to auditor expectations
• Consider non-financial information
• Lets try!ANHEUSER-BUSCH_10-K.xls