[INSERT CLIENT NAME HERE]
Planning Memo
December 31, 20
We have been retained as continuing auditors for [Insert client name here] (client abbreviation here) for the year ending December 31, 20
Engagement Objectives
* Provide our report on the examination of (client abbreviation here)'s financial statements by February 5, 20 with year-end field work to begin January 14, 20
* Issue our management letter comments by February 10, 20
Preliminary Analytical Review
Briefly describe the results of your analytical procedures. Print this memo as an outline, then compose your answers as attachments in your wordprocessor or edit this draft if you prefer. Describe any unusual or unexpected relationships that suggest risk of material misstatement?
Materiality
Briefly describe your computation of planning materiality including the factors you considered in your estimate.
Study of Internal Control
Briefly summarize the key facts you noted in your study of the five components of internal control and the rationale for the conclusions you made in the audit program concerning whether each component was adequately designed and implemented.
Summary of Team Meeting about RMM Including Fraud
Conduct a team meeting and write a brief summary here including the date, who attended, what was discussed, and any conclusions drawn.
Prior-Year Working Papers
Last year's adjustments were in the areas of inventory valuation and inaccurate accruals. We have discussed this with the client and have been assured that the problems have been addressed.
Summary of Risks of Material Misstatement
Based on your review of the permanent file, the financial statements, and discussions with management, briefly summarize the risks of material misstatement you have identified and your suggested response.
Audit Strategy
Based on our review of (client abbreviation here)'s business and its controls we have decided on a preliminary audit approach. Considering inherent and control risks factors and the economics of the engagement, we have decided on a full substantive testing approach. Please review the following strategy and indicate in the audit program if you are in agreement with this approach or not.
Revenue Cycle:
Test of controls Although it appears that the controls in general are adequate in this area, we are not planning to rely on them since there is inadequate segregation of duties and the time it would take to test them would exceed the savings in substantive tests. [
Revise to fit your recommended strategy. Especially for a public company client]
Substantive tests Substantive tests will include analytical procedures and confirmation of open balances to test their existence and accuracy, including cutoff. There are approximately 125 accounts outstanding. The confirmation date will be as of December 31. Clerical tests will be made
to test the aging. Analytical procedures and inquiry will be used to
provide assurance regarding proper valuation.
Expenditure Cycle:
Tests of controls The expenditure cycle is generally unchanged from last year. Again, it appears that the systems are adequate, but we are not planning to rely on them since there is inadequate segregation and the time it would take to test them would exceed the savings in substantive tests.
[Revise to fit your recommended strategy. Especially for a public company client]
Substantive tests Tests at year-end will be directed toward the completeness and accuracy of accounts payable. Our search for unrecorded liabilities will include testing receiving reports at year-end and examining cash disbursements subsequent to year-end.
Inventory will be observed on December 31. Test counts will be made and tied to the final inventory listing. Turnover rates will be analyzed to detect possible valuation problems. We will also look at sales activity reported in the perpetual inventory database to identify slow-moving or excess stock.
Fixed asset additions will be vouched and retirements, if any, will be reviewed to ensure that the accounts have been properly adjusted and that any gains or losses have been calculated accurately. Depreciation will also be recalculated on a test basis and leases will be reviewed for propriety.