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audit plan

Auditing Audit planning

audit plan

AUDIT PLAN-

An audit plan lays out the strategies to be followed to conduct an audit. It includes the nature, timing and extent of audit procedures to be performed by the engagement team members. The auditor shall develop an audit plan while considering the following:

(a) The nature, timing and extent of planned risk assessment procedures.

(b) The nature, timing and extent of audit procedures at the assertion level.

(c) Other planned audit procedures that are required to be carried out so that the engagement complies with Standard on Auditing (SAs).

PURPOSE OF AUDIT PLANNING

The major purposes of planning are : -

To work with each other and with the people who will carry out the plans
To clarify objectives
To set goals for each division
To establish policies and standard methods to guide those who do the work
To develop programmes, strategies and schedules to keep the work moving towards the objectives
To spell out how detailed the plans should be
To decide who should participate in formulating policies and
To determine how much freedom of action should be given to subordinate

Considerations in Audit Planning-

The aim is to provide an efficient and economic service within an appropriate time scale. The exact form and nature of audit planning, however, should be governed by the following considerations:

The size and complexity of the company;

the commercial environment ,in which it operates;
the method of processing transactions; and
the reporting requirements to which it is subject to. ,

The auditor should consider the following matters while laying out an audit plan:

(a) Terms of engagement and any statutory responsibilities.

(b) Nature and timing of report or other communications.

(d) Effect of new accounting or auditing requirements.

(e) Identification of significant audit areas

AUDIT PROGRAMME

Audit programme is an outline of procedure to be followed in order to arrive at an opinion concerning the financial statements of a company

The main features of an Audit Programme are as follows:

It is a method of planning, supervising and controlling the audit performance.
It is a systematic approach to audit.
It is a planned procedure of examination and steps of verification.
It is a detailed plan of audit techniques to be adopted and applied for achieving the objectives of audit. It specifies the work to be done and the manner in which it should be completed within the estimated time.
It shows the tasks to be carried out and some relevant instructions to the audit staff in respect of the extent of checking to be done for examination of evidence

Parts of Audit Programme

An Audit programme should normally have two parts:

Detailed Audit Programme showing the work required to form an opinion on the reliability of the books as a basis' for the accounts; and
Balance Sheet Audit programme showing' the work necessary for the verification of the items appearing in the Profit and Loss Account and Balance Sheet of the company,

ADVANTAGES OF AUDIT PROGRAMME

It helps in ensuring that all important areas are appropriately covered during audit.
It helps in distributing the work among the assistants in accordance with the level of their competence and experience.
It provides instructions to the audit staff and reduces scope for misunderstanding.
It helps in fixing the responsibility for the work done among the audit staff as work done may be traced back to the individual staff member.
It helps in assessing the progress of work by ascertaining what part of audit work has been completed and how much is left.
It serves as evidence against charge of negligence.
On completion of an audit, it serves the purpose of audit record which may be useful for future reference.

DISADVANTAGES OF AUDIT PROGRAMME
•Rigidity
•educes the Initiative of Efficient Staff
•Audit Work becomes Mechanical
•New Areas may be Overlooked

AUDIT NOTE BOOK

An Audit Note Book is a sort of diary maintained by the audit staff recording their difficulties and experiences in course of audit, matters for discussion, special points observed, enquiries made, queries raised, replies received, correspondence recorded, etc. It serves as a source of information about the audit work and the points which need to be remembered. It also gives the benefit of being a continuous link in audit work, as it records the work completed as well as the matters awaiting further follow up.

An audit Note Book combines recording of:

(i) General Information in respect of the audit, and

(ii) Special Paints of significant matters observed during the audit of accounts

AUDIT EVIDENCE

The auditor has to obtain sufficient and appropriate evidence to substantiate his opinion on the financial statements. The audit evidence provides grounds for believing that a particular thing is true or not by providing support for a fact or a point in question. The evidences collected by the auditor must support the contents of the auditor’s report.

Essentials of good audit evidence

•Sufficient

•Reliable

•Source

•Nature;

•Relevant

(a) Sufficient: The audit evidence are said to be sufficient when they are in adequate quantity. The audit evidence enables the auditor to form an opinion on the financial information. Sufficient evidence can be obtained by test checking instead of 100% checking.

(b) Reliable: Evidences obtained by auditor are persuasive rather than conclusive in nature therefore evidence cannot be100% reliable. The reliability of audit evidence is depends upon:

(i) Source: whether the evidence obtained within the organisation i.e. internal and obtained from outside i.e. external (confirmation by third party)

(ii) Nature: whether the evidence is verbal (explanation from clients staff), visual (physical verification of stock) or documentary (bills attached to vouchers)

(c) Relevant: The obtained audit evidence must be relevant to the matter being checked. For e.g. the balance stock in hand to be checked then the relevant evidence shall the physical verification.

TECHNIQUES OF OBTAINING EVIDENCE

(i) Inspection: Inspecting the documentary evidence like deed papers, certificates etc relating to the audit whether in possession of the entity or the third parties.

(ii) Observation: Observing the process or procedure being performed by others. Like physical verification and counting of inventory.

(iii) Enquiry: Enquiring from the client, his staff or third parties having knowledge about a particular item or activity.

(iv) Confirmation: Seeking information from third party having knowledge about a particular transaction.

(v) Computation: It involves checking of the arithmetical accuracy of a source documents and accounting records.

(vi) Analytical Review Procedures: Analysis of significant ratios and trends for investigating unusual fluctuation and items.

(vii) Independent Execution: In this auditor performs the procedure and controls that were originally performed as part of entity’s internal control system

AUDIT WORKING PAPERS

Audit working papers are the documents prepared or obtained by the auditors and retained by him in connection with the audit.

Working papers include all the evidence gathered by auditor indicating what work has been done by him and the procedure he has followed in verifying a particular asset or a liability and also provide information that whether:

– audit was properly planned;

– audit was carried out;

– audit was adequately supervised;

– the appropriate review was undertaken;

– the evidence is sufficient and appropriate to support the audit opinion.

Working papers are the connecting link between the client’s records and the audited accounts.

if audit working papers are disclosed than it will amount to professional misconduct.

Objects of Audit Working Papers