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ACCT 3202 · Audit Planning and Risk Assessment

Led by Dorothy Rigour Simulacrum

1 modules 1 module Accounting & Business Updated 6 days ago
Audit Planning and R…2
  1. Module 2 ○ Open

    Audit Planning and Risk Assessment

    Led by Dorothy Rigour Simulacrum

    The question

    Audit planning and risk assessment — the upfront work that drives the entire audit. The module covers the audit risk model (audit risk = inherent × control × detection), the calculation of materiality and performance materiality using UK plc benchmarks, the identification of significant risks under ISA UK 3150, the engagement-team brainstorming required by ISA UK 2400 for fraud risk, and the construction of the audit strategy memo. The worked scenario plans the 2025 audit of Halberd plc with a mid-year ERP migration and an announced impairment review.

    Outcome

    The student can prepare an audit strategy memo for a hypothetical UK-listed company including identification of significant risks, calculation of materiality, and a high-level audit approach; can apply the audit risk model to a specific financial-statement assertion; and can articulate the engagement-team brainstorming required for fraud risk. (Audit planning and risk assessment)

    Practice scenarios

    Planning the Halberd plc 2025 Audit

    You plan the 2025 Halberd plc audit with the company facing a mid-year ERP migration, two new acquisitions, and an announced impairment review. The work tests whether you can calculate materiality from defensible UK plc benchmarks, identify the significant risks for the year, and frame an audit strategy memo defensible to the engagement quality control reviewer.

    Your goals

    • Calculate overall materiality for the 2025 audit using UK plc benchmarks: e.g. 5% of profit before tax (£42m × 5% = £2.1m); cross-check at ~0.5% revenue (£1.9m); use the lower of the benchmarks. Set overall materiality at £2.0m.
    • Set performance materiality at 75% of overall: £1.5m.
    • Set specific materiality (lower) for sensitive items like director remuneration, related-party transactions, share-based payments: £200k.
    • Identify the significant risks for the 2025 audit: (1) revenue recognition with long-term contracts; (2) acquired-business goodwill and intangibles impairment under IAS 36; (3) the ERP migration and the integrity of the new system's general ledger; (4) the announced impairment review (the management estimate); (5) defined-benefit pension assumptions; (6) the two new acquisitions (IFRS 3 application).
    • Frame the audit strategy memo: scope (component auditors needed for the new acquisitions if material); timeline (early review before ERP go-live; interim test of new system; year-end substantive); team (additional audit-specialist time on ERP and IT controls; valuation specialist on impairment); reliance on internal audit (likely on routine controls, not on significant-risk areas).
    • Frame as a 1,500-word audit strategy memo for the engagement quality control reviewer to approve.