Audit Planning

 

Definitions

 

Prof. L.R.Dicksee. "auditing is an examination of accounting records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.

 

Comptroller and Auditor General of India, defines audit “an instrument of financial control.—It acts as a safeguard on behalf of the proprietor against extravagance, carelessness or fraud on the part of the   roprietor's agents or servants in the realization and utilisation of the money or other assets and

—it ensures on the proprietor's behalf that the accounts maintained truly represent facts and that the expenditure has been incurred with due regularity and propriety. —The agency employed for this purpose is called an auditor."

 

Audit Planning

“The auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner. Plans should be based on knowledge of the client’s business”.

 

As per Auditing and Assurance Standard 1, “Basic Principles Governing an Audit”, Audit Planning is one of the basic principles.  Accordingly, it states

“The auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner. Plans should be based on knowledge of the client’s business.

 

Plans should be made to cover, among other things:

·         acquiring knowledge of the client’s accounting systems, policies and internal control procedures;

·         establishing the expected degree of reliance to be placed on internal control;

·         determining and programming the nature, timing, and extent of the audit procedures to be performed; and

·         coordinating the work to be performed.

Plans should be further developed and revised as necessary during the course of the audit.

SA-300, “Planning an Audit of Financial Statements” further expounds this principle. According to it, planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly after (or in connection with) the completion of the previous audit and continues until the completion of the current audit engagement. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan.

Benefits of Planning in the Audit of Financial Statements

·         Planning an audit involves establishing the overall audit strategy for the engagement and developing an audit plan. Adequate planning benefits the audit of financial statements in several ways, including the following:

·         the auditor to devote appropriate attention to important areas of the audit.

·         Helping the auditor identify and resolve potential problems on a timely basis.

·         Helping the auditor properly organize and manage the audit engagement so that it is performed in an effective and efficient manner.

·         Assisting in the selection of engagement team members with appropriate levels of capabilities and competence to respond to anticipated risks, and the proper assignment of work to them.

·         Facilitating the direction and supervision of engagement team members and the review of their work.

 

Planning the Flow of Audit Work

Ethical Clearance from Previous Auditor

The clause provides for communication with previous auditor where he has an opportunity to safeguard his interest and also public interest, the provision of Clause 8 requiring a communication with the previous auditor is absolute and applicable even in cases where the member is aware that the previous auditor had been made aware of the appointment

Letter of Engagement

The engagement letter documents and confirms the auditor's acceptance of the appointment, the objective and scope of the audit, the extent of the auditor's responsibilities to the client and the form of any reports.

Acknowledgment from Client

The auditor should obtain the acknowledgement and agreement of Client and, where appropriate, those charged with governance that they understand their responsibilities

Find Out the Background and Operational System in Theory

ISA 200, “Objective and General Principles Governing an Audit of Financial Statements” states that audits are conducted on the premises that these responsibilities are acknowledged and understood by management and, where appropriate, those charged with governance.

Discover the Operational System in Practice

A condition for acceptance of an assurance engagement is that the criteria referred to in the definition of an assurance engagement are suitable and available to intended users. Criteria are the benchmarks used to evaluate or measure the subject matter including, where relevant, benchmarks for presentation and disclosure. Suitable criteria are required for reasonably consistent evaluation or measurement of a subject matter within the context of professional judgment. For purposes of the ISAs, the applicable financial reporting framework provides the criteria the auditor uses to evaluate or measure the preparation and presentation of the financial statements.

Identify the Strengths and Weaknesses of the System

Strengths and weaknesses of the oversight over the auditing profession using modern techniques tries to find the tape and discovers that the oversight system of the auditing and accounting profession was obsolete.

Evaluate the Relative Effect of Strengths and Weaknesses in Each major Operational Area

Conducting a SWOT analysis can help to use resources efficiently, improve operations, uncover opportunities, mitigate risk, and become more competitive. probably most in tune with internal operations, so begin by evaluating the internal factors specific to your business strengths and weaknesses.

Determine the Reliability of the Underlying Records as a Basis for Preparation of the Financial Statements

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

Ensure that the Financial Statements are in Agreement with the Underlying Records

Form an Opinion on the Accounts - Whether they Give a True and Fair View and Comply with Statutory and Other Requirements.

Express Opinion in the Audit Report

An auditor expresses an adverse opinion when he considers that the misstatement is so material and pervasive that a qualification of the report is not adequate to disclose such misstatements of financial statements. The auditor shall express an adverse opinion after obtaining sufficient and appropriate audit evidence.