This project is divided into two parts that will focus on the audit planning process. Completion of the audit will come in Project Two.

Scenario

The CPA firm of Penmen Associates is planning to take over the audit of financial statements of Keystone, Inc. As a senior auditor for the firm, you have been tasked with evaluating Keystone, using generally accepted auditing standards (GAAS), best practices, and risk assessment techniques to identify the objectives and scope of the audit for this client. After completion, Penmen Associates has asked you to prepare for the audit. You will gain an understanding of Keystone's internal control structure, financial accounts, business environment, materiality, and any inherent risks that may impact the company. You will also review external and other factors, as well as interview data that could impact the audit.

Directions

For this project, you will create a working paper. A working paper is an informational report prepared by accountants and auditors as supporting documents for formal reports and financial statements.

Part One: Planning

Review the Keystone case study and the client suitability interview to validate Keystone as a viable client; both documents are linked in the Supporting Materials section. Apply GAAS to the audit planning process.

1. Determine potential internal risk factors for conducting the external audit. Include the following:
   1. Risk related to structure of the company based on the client interview
   2. Risk discovered during due diligence process
   3. Client risk profile
2. Determine potential external risk factors for conducting the external audit. Include the following:
   1. Industry and market research that informs risk factors
   2. Regulatory standards
   3. Client risk profile
3. Describe the controls that are in place to minimize risk to the client. Consider the following:
   1. How do these controls impact the audit plan?
4. Utilize auditing standards to determine potential issues for further analysis. Consider the following:
   1. How is GAAS used to identify issues?
5. Determine the objectives and scope of the external audit. Include the following:
   1. Processes that need to be audited
   2. Associated deliverables needed for the audit
   3. Data type to be investigated

Part Two: Field Work

Using the Keystone financial data, client suitability interview, and AS 2110 standards provided in the Supporting Materials section, perform an analysis of the company data.

1. Describe the next steps in the audit based on the risk assessment.Consider the following:
   1. How do the internal and external risk factors inform the audit to be performed?
2. Determine the audit tests needed through financial data analysis.
   1. What tests are needed?
   2. What issues were found warranting the need for selected tests?
3. Analyze audit evidence for errors from financial data. Include the following:
   1. Found errors
   2. Impact of errors on the external audit
   3. Explanation of possible errors from financial data
4. Describe how these audit strategies support the client profile and risk areas.
5. Determine evidence needed for substantive testing and risk assessment based on audit findings. Consider the following:
   1. What other sample reports or materials need to be requested to fulfill this audit?