RAMP

Audit Planning Memo Considerations
Lecture #5 Handout
Risk, Approach, Materiality, Procedures (RAMP) Checklist
The RAMP checklist should not be used as a template. Based on the case facts given, you
should go through this list in order to determine what is appropriate to be discussed (and what
isn’t!).

Risk of Material Mistatement
o This is the assessment of risk for the overall audit which can be assessed as high,
moderate or low based on your support
o If it is a continuing engagement, your assessment can say higher or lower as long as
you are told what the assessment was in the prior year in the case facts
o Things to consider when assessing the overall risk of material misstatement:

• Users (new and existing)
• First time audit
• Timing
• Going concern
• Overall complexity of the business, accounting transactions etc
• Management integrity
• Previous auditors
• Competency issues
• Any other issue that is pervasive

Approach
o To determine the overall approach for the audit, it is usually required that you first
assess control risk on an overall basis
o Based on your control risk assessment, determine the overall approach (combined vs substantive)

Other considerations when assessing approach:

• The effect of multiple locations (e.g. which ones will be visited etc.)
• Subsidiaries (e.g. which ones will be audited based on materiality and risk etc.)
• Timing (e.g. effects of being appointed after year end)
• Changes in internal control (e.g. effects of new processes, new systems etc.)

Materiality
o The discussion of materiality should always include a link to the users of the financial
statements:
o Justify a percentage based the amount of reliance on the financial statements
(can be an actual number or qualitatively such as lower or higher)
o Justify an appropriate benchmark based on the needs of the users
o If you are given quantitative case facts that include the benchmark you have chosen for
materiality, you should calculate materiality
o Based on your analysis, consider whether recalculating materiality is required (e.g. you
have identified adjustments related to the benchmark you have chosen)

Procedures
o Procedures should be formulated for any high risk classes of transactions, accounts or
assertions

• High risk areas include any areas where one or a combination of the following exists:
• Inherent risk is high
• Control risk is high
• Risk of material misstatement is high 

o Procedures should include a purpose as well as the actual procedure

• The purpose is the detailed description of why the risk is high for a certain class of transactions or accounts (s) at the most specific level you can (e.g. use the assertion where possible but can also include the account or class of transactions):
• The _______________ (inherent risk, control risk or risk of material misstatement) of _______________ (assertion) for _______________ (class of transactions or account(s)) is high because _______________ (describe the case facts that led you to assess the risk as high).
• Based on the purpose, describe the procedure(s) required to assess the risk in
  detail (e.g. what information would be required, what to do with the information
  once it is obtained etc.) 

Other Considerations

Client Acceptance

• Previous auditors (e.g. reasons for leaving, being replaced etc) 
• ROPC Issues (e.g. independence, conflict of interest etc.)
• Ethical issues (e.g. potential ethical issues the engagement may present etc.)
• Management integrity (e.g. doubts raised about their integrity etc.)
• Auditability (e.g. information system organization, availability of source documents etc.)
• Overall risk of the engagement (e.g. does not fit firm’s policy, too high etc.)

First Time Audit

• Effect of prior year financial statements and opening balances (e.g. audited, not audited)
• Timing (e.g. time required to complete the engagement)
• Extent of work required (e.g. size of business, complexity etc.)

Others

• Timing (e.g. tight deadline, appointed after year end)
• Reliance on other auditors (e.g. are they reliable and competent)
• Need for specialists (e.g. for specialized areas)
• Reliance on other organizations (e.g. service organizations for payroll services etc.)
• Possible qualifications required (e.g. GAAP departures, scope limitations)

Other ways Audit Planning can be tested

• Planning memos for other types of engagements 
• Critiquing an audit planning memo that has already been prepared
• Describing the purpose of procedures
• Deciding what type of engagement best suits the client’s needs 
• “Auditing” schedules provided by others