Planning an audit involves more than just obtaining business understanding and performing risk assessment.
I. PROCESS OF AUDIT PLANNING
It includes following procedures
1. Knowledge and understanding of client’s business
2. Development of audit strategies or overall plan (who, when and how)
3. Preparation of audit programme
II. WHY DO WE NEED AN UNDERSTANDING OF CLIENT’S BUSINESS?
What Client’s business?
Industry, regulatory and other external factors, including the applicable financial reporting framework
Nature of the entity, including operations, ownership and governance, investments, structure and financing.
Entity’s selection and application of accounting policies
Objectives and strategies and related business risks that might cause material misstatement in the financial statements
Measurement and review of the entity’s financial performance.
Internal control.
Why understand of client’s business?
To identify and assess the risks of material misstatement in the financial statements.
To enable the auditor to design and perform further audit procedures.
To provide a frame of reference for exercising audit judgement, for example, when setting audit materiality.
How understand client’s business?
Inquiries of management, appropriate individuals within the internal audit function and others within the entity
Analytical procedures
Observation and inspection
Prior period knowledge
Discussion by the audit team of the susceptibility of the financial statements to material misstatement
Information from other engagements undertaken for the entity
Other sources:
– Information from the client’s website
– Publications or websites related to the industry the client operates in
III. DEVELOPMENT OF AUDIT STRATEGIES OR OVERALL PLAN (WHO, WHEN AND HOW)
It addresses the specifics of what, where, who, when and how:
What are the audit objectives?
Where will the audit be done? (i.e. scope)
When will the audit(s) occur? (how long?)
Who are the auditors?
How will the audit be done?
IV. PREPARATION OF AUDIT PROGRAMME
An audit programme is a set of directions which the auditor and its team members need to follow for proper execution of audit. After preparing an audit plan, auditor allocates the work and prepares a programme which contains steps that the audit team needs to follow while conducting an audit. Thus, an auditor prepares a programme which contains detailed information about various steps and audit procedures to be followed by the audit.
V. BENEFITS OF AUDIT PLAN
Audits are planned to:
Help the auditor devote appropriate attention to important areas of the audit.
Help the auditor identify and resolve potential problems on a timely basis.
Help the auditor properly organise and manage the audit so it is performed in an effective manner.
Assist in the selection of appropriate team members and assignment of work to them.
Facilitate the direction, supervision and review of work.
Assist in coordination of work done by auditors of components and experts.
Practical Question
Assume you are required to audit ABC Construction Company, please make audit planning.
Answer
1.Knowledge and understanding of client’s business (understand)
- Flat
- Operation (cement, sand, brick, steel, etc)
- Inspection
- Enquiry of management
- Identify risk
- Compliance / legal document
2. Development of audit strategies or overall plan (who, when and how)
- A, Mr.B, Mr.C, Mr.Sok, Mr. David
- 1/8/19 to 1/10/19
- Audit Procedure ( stock count=> procedure ?, expense => procedure ?, revenue=> procedure ?, Account Payable => procedure ?, asset => procedure ?)
3. Preparation of audit programme (written plan)
- detail and specific
- A, count stock, 1/8/19,audit procedure
- B, Revenue, 1/8/19 to 7/8/19, audit procedure etc.
Source :
1.BPP University, F8 and FAU
2.Kaplan, Inc., F8 and FAU