3. planning feb 2014
TRANSCRIPT
MEANINGAction to be taken by an auditor, inrespect of any particular field ofverification and reporting, shouldbe so design that it may enable himto conduct an audit moreeffectively.
MEANINGAccording to AS # 04
“ Planning means developing ageneral strategy and a detailedapproach for the expected nature,timing and extent of the audit. Theauditor plans to perform the audit in anefficient and timely manner.”
OVERALL AUDIT PLANAccording to AS # 04
“The auditor should develop anddocument an overall audit plan,describing the expected scope andconduct of the audit”
6-5
Audit Planning
Decide whetherto accept the
prospective client
Obtain knowledge of client’s businessand environment
Make preliminaryarrangements with
the client
Prepare the engagement letter
Assess risks of material misstatement,
including fraud risk
Prepare the audit plan, preliminary
program, and time budget
FACTORS TO BE CONSIDERED
Nature of business
Size and complexity of business
Environment in which an enterprise operates
Methods of processing transactions
Reporting requirements
Previous experience with the client
Knowledge of clients business
Industry in which the enterprise is involved
Specific methodology and technology used
FACTORS TO BE CONSIDERED
6-8
Sources of Information
Inquiries of management Industry Accounting and Auditing Guides Industry Risk Alerts Government publications Prior company annual reports and SEC filings Prior tax returns Electronic sources Tour of plant and offices Analytical procedures
6-9
Assessing Fraud Risks
Two types Fraudulent financial reporting (management fraud)
Misappropriation of assets (defalcations)
Procedures to assess fraud risks Discussion among engagement team
Inquiries of management and other personnel
Planning analytical procedures
Considering fraud risk factors Incentives
Opportunity
Attitude
PLANNING PROCEDUREAudit planning is a continuous process and can be classified into following stages:
1. Sound knowledge regarding business of client
2. Developing an overall audit plan
3. Implementation the audit plan through audit programme
4. Updating the audit plan according to the changes
5. Post audit planning review in form of suggestions
KEY MATTERS KNOWLEDGE OF THE BUSINESS
General economic factors and industryaffecting the entity’s business.
Important characteristics of entity likebusiness, financial performance andreporting requirements including changessince the last audit.
General level of competence ofmanagement
KNOWLEDGE OF THE BUSINESS Auditor should obtain knowledge of
Annual accounts to shareholders
Minutes of Shareholders, directors and Committees
Internal financial reports
Previous year’s working papers
Discussion with client’s management and staff
Policy, accounting and management manuals
Government policies and their impact on business
Visits of client premises and plants
Overall Audit StrategyACCOUNTING AND INETRNAL CONTROL SYSTEM
Understanding the accounting policies and changes in those policies.
The effect of new auditing or accounting pronouncements.
Sound knowledge of internal control system especially on test of control and substantive procedures.
Overall Audit StrategyRISK AND MATERIALITY
Expected assessment of inherent andcontrol risks.
Identification of significant audit areas.
Setting of materiality level for auditpurposes.
Possibility of material misstatement,including the experience of past periodsor fraud.
Overall Audit StrategyNATURE, TIMING AND EXTENT OF PROCEDURE
Possible changes of emphasis on specificaudit areas.
Effect of information technology on theaudit.
Work of internal auditing and itsexpected effect on external auditing.
Overall Audit StrategyCOORDINATION AND REVIEW
Involvement of other auditors in the audit of components for example subsidiaries, branches and divisions.
Involvement of experts.
Staffing requirements.
Number of locations.
Overall Audit StrategyOTHER MATTERS
Possibility that the going concernassumption may be subject to question.
Conditions requiring special attention,such as the existence of related parties.
The terms of engagement and thestatutory responsibilities.
The nature and timing of reports.
DOCUMENTATION OF PLANAuditor should document his plan in
the end of the first stage of planning.
Form and extent of document dependupon the size of each individual audit.
Auditor should follow time tableshowing allocated hours for each auditprocedures.
AUDIT TIMETABLEAuditor should document an overall audit
timetable setting out the dates agreed withthe client for the commencement and thecompletion of audit.
Make provision for phasing the audit overthe year instead of carrying out the entireaudit work at year end.
ADJUSTMENT OF PLANNING Auditor should be continuously amendable to
circumstances with which he is confrontedduring audit.
The errors noticed, should be given dueconsideration as all these greatly influence theaudit plan.
Should extend the scope of audit by increasingthe number of samples in the test if the errorsor fraud has been found
Specific Planning Area Time Budgeting
Staff Planning
Client’s work Support
Extent of reliance over internal control
Meetings with tax and finance department
Joint audit of sectional audit
Work performed by distant offices
BENEFITS OF PLANNING Appropriate attention to important areas of
audit.
Prompt identification of potential problems.
Expeditious completion of task by exercisingproper control and timing.
Proper utilization of audit force available.
Effective coordination of audit assignment.
Review of field work by seniors becomessimplified and speedy.
Advantages of Planning1. Progress monitor is easy
2. Uniformity in audit work
3. Division of work made easy
4. Responsibility can easily be fixed when divided properly
5. Final review made easy