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AUDIT PLANNING ACCA
It’s a vital area of the audit primarily conducted at the beginning of audit process to ensure that
Appropriate attention is devoted to important areas
Potential problems are promptly identified
Work in completed expeditiously
Work is properly coordinated
The plan developed will be revised as necessary during the course of audit
Auditor should perform the audit with an attitude of “Professional Skepticism” recognizing that circumstances may exist, which cause the financial statements to be materially misstated, such circumstances include.
Inherent limitations of audit
Inherent limitation factors of accounting and internal control system
Fact that most audit evidence are persuasive rather that conclusive
Judgments involved in accounting and audit work
It involves developing a general strategy and detailed approach for expected timing nature and extent of audit.
It’s the general strategy for audit, which sets the direction for audit, describe the expected scope and conduct of audit and provides guiding for the development of audit programme.
Detailed set of instructions to implement overall plan for the nature, timing and extent of audit procedure.
General Planning Matters
The following administrative details of an audit should be considered while developing audit plan.
Use of IT
Subsidiary objectives of the assignment
When planning an audit engagement partners or manager has to considers many practical areas like
Location of the audit
For the selection of audit staff for a particular assignment following considerations should be made.
Appropriate level of qualification
Reasonable experience and expertise
Availability of staff
Relationships with client and within staff members
Boarding and lodging requirements
The management of the client may have preferences regarding audit staff. Audit manager should consider their recommendations in the light of independence rule to decide the changing of audit team as consistency of audit staff helps audit efficiency.
Following are important issues
Locations of different premises of client e.g. factory, admin office
Mobility of audit staff
Location of audit review by manager engagement partner
Location of audit staff to each site
Liaison with client staff to ensure each site visits in congenial.
It is important that the auditors know the dead lines and the key dates:
Dates of financial statements approval
Date of main audit visit
Date of stock
Date of manager review
Date of engagement partner’s review
Date of engagement partner’s post audit meeting with client management
Date of which audit report is due to be signed
Date of AGM
Uses Of IT
There are several factors to be considered
whether the client has computerized system
if so whether the auditor will make use of CAATS
whether auditor will use computer for making working papers
if so whether audit team is appropriately equipped
Audit must be cost effective therefore, the time to be taken to conduct each part of the audit is to be estimated and the fee set accordingly it is important that
Audit team is aware of time budget
Audit team record variance from time budget. The time budgets will be based on issues such as:
a) Prior years time record
b) Risk assessment
c) Materiality consideration
Along with the key purpose of audit i.e. to express an opinion on the financial statements, there may be certain other objectives of audit assignment e.g.
Report on weakness of internal control system
Report to be included in prospectus.
Other ancillary service to be mentioned (recommendation for improvement in compliance with law and regulations.
THE OVERALL AUDIT PLAN
Overall audit plan describes the expected scope and conduct of the audit:
Factors Affecting The Form And Content Of Overall Audit Plan
Size of the entity.
Complexity of the audit
Specific methodology and technology (e.g. computers) used by the auditor.
Matters To Be Considered In Overall Audit Planning
a) Knowledge Of
General economic factors and industry conditions
Important characteristics of the entity, its business
Performance and reporting requirements and changes therein
Level of competence of management
b) Understanding The Accounting And Internal Control System
The accounting policies adopted and change therein.
The effect of new accounting or auditing pronouncements
The auditor’s cumulative knowledge of internal control and expected emphasis of tests of control and substantive procedures.
c) Risk And Materiality
The expected assessment of inherent and control risk and identification of significant audit areas.
The setting of materiality level.
The possibility of material misstatement
The identification of complex accounting areas
d) Nature, Timing And Extent Of Procedure
Possible change of emphasis of specific audit areas
The effect of information technology on the audit
The work of internal auditing and its effect on external auditing
e) Coordination, Direction, Supervision And Review
The involvement of other auditors
The involvement of experts
The number of locations
f) Other Matters
Going concern assumption
Conditions requiring special attention such as related parties
Terms of engagement and any statutory responsibilities
The nature and timing of reports or other communication
Audit program ensures that the work is carried out in accordance with audit plan
Meaning And Objective Of Audit Program
These are written instruction, which lay down the procedures to be performed by the assistants in order to implement the audit plan. It helps in controlling proper execution of the audit work. It may also contain the following.
In Preparing The Audit Program Following Points Should Be Considered
Audit objectives for each area; and
An hourly time budget for various audit areas or procedures.
Assessment of inherent and control risks
Required level of assurance from substantive procedures
Timing of tests of controls and substantive procedures
Availability of assistants
Involvement of other auditors or experts
Assistance from client
Update The Plan
Plans should be revised during the course of audit. Audit planning is a continuous process because of changes in conditions. Circumstances ma causes us to alter the plan; therefore, it is important to record the significant changes.
Audit Planning Memorandum
APM is documentary evidence that the adequate planning is carried out. The audit-planning memorandum should include intended audit approach, risks evaluation, materiality levels, timetable, staffing requirement, and consideration of going concern basis and client’s use of computer systems.
For the above it is apparent that audit plan and APM are the same things.