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Audit Planning & Analytical Procedures

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Running Head: AUDIT PLANNING & ANALYTICAL PROCEDURES
Audit Planning & Analytical Procedures
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Audit Planning & Analytical Procedures
Determine both the relationship of risks in the planning of the audit and factors that
influence those risks. Speculate on which type of risk creates the most uncertainty for the
auditor, and recommend at least two ways to plan the audit to mitigate those risks.
Provide specific examples.
Auditors need to analyze risk areas and then plan the audit based on those risks. If I have
identified a high risk area, I would want to plan a higher number of tests in those areas, as
compared to low risk areas. If accounts receivable is higher than what is the normal range when
looking at a cross sectional analysis or other comparative information, I would plan additional
tests on A/R to determine if the balance is accurate. Risks are directly related to the audit plan -
the level of risk guides the audit plan. As required by the PCAOB, due to SOX, auditors must
obtain a sufficient understanding of internal control in the company, to identify the main types of
misstatements that must be present. This is based upon types of controls used (or lack of
controls) by management, type of industry, and size of the company based on gross receipts.
In my opinion, the A/R account creates the biggest risk, which would be the risk of
overstatement. In large companies, A/R can be extremely difficult to verify, even with sufficient
testing procedures. With A/P, the account balances on large accounts can be verified through the
creditor. Auditors cannot verify A/R accounts with customers, for various reasons. The auditor
therefore has to rely on internal source documents to verify most A/R transactions, and external
source documents are always generally preferred. The problem is that internal source documents

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 Audit Planning & Analytical Procedures Your name Your Instructor’s name Course # Your Institution’ name Date: Audit Planning & Analytical Procedures Determine both the relationship of risks in the planning of the audit and factors that influence those risks. Speculate on which type of risk creates the most uncertainty for the auditor, and recommend at least two ways to plan the audit to mitigate those risks. Provide specific examples. Auditors need to analyze risk areas and then plan the audit based on those risks. If I have identified a high risk area, I would want to plan a higher number of tests in those areas, as compared to low risk areas. If accounts receivable is higher than what is the normal range when looking at a cross sectional analysis or other comparative information, I would plan additional tests on A/R to determine if the balance is accurate. Risks are directly related to the audit plan - the level of risk guides the audit plan. As required by the PCAOB, due to SOX, auditors must obtain a sufficient understanding of internal control in the company, to identify the main types of misstatements that must be present. This is based upon types of controls used (or lack of controls) by management, type of industry, and size of the company based on gross receipts. In my opinion, the A/R account creates the biggest risk, which would be the risk of overstatement. In large companies, A/R can be extremely difficult to verify, even with sufficient testin ...
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