AUDIT PLANNING

Objective-

Objective of auditor to plan audit so that it will be performed in an effective efficiently and timely
manner.

Element of planning-
1 PEA

2 Planning activity

 Preliminary engagement activity

PEA include-

Auditor should-

1. Preforming procedure to check client continuance relationship (SA 220)

2. Evaluate ethical requirement
3. Establish understanding of terms and condition (SA 210)

 Ethical requirement regarding independence

For this engagement partner shall-

 Obtain relevant information and evaluate circumstance that create threat to independence
 While evaluating if breaches identified determine whether they create threat to independence
 Take appropriate action to eliminate or reduce threat to acceptable low level by putting
safeguards, if fail to eliminate then withdraw

Extra Notes –
 Normally planning should be done by engagement partner and he should involve other key engagement
members this enhancing the effectiveness and efficiency of planning process
 Plan should be further revise or developed as necessary during course of audit

 Planning activity

Planning an audit involves

 Establishing the overall audit strategy for engagement and,

 Developing an audit plan
  Matters to Be covered in Planning

 acquiring knowledge of the client’s accounting systems, policies and internal control
 deciding the expected degree of reliance to be placed on internal control
 determining the nature, timing, and extent of the audit procedures to be performed and
coordinating the work to be performed.
 plan should be revised as necessary

 Benefits of Planning in the Audit of Financial Statements

 Helping the auditor identify and resolve potential problems on a timely basis
 Assisting in the selection of appropriate engagement team members
 Planning helps in assisting the coordination of the work performed.
 Helping the auditor to give significant attention to important areas of the audit.
 manage the audit engagement so that it is performed in an effective and efficient manner
 supervision of engagement team members and the review of their work

AUDIT STRATEGY

Overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the
more detailed audit plan

 Strategy assist auditor to determining marshaling his human resource

1. Deploy of qualitative resources

Audit strategy helps in deploying the appropriate/qualitative resources for specific audit areas for e.g.
involvement of experienced team member or experts for complex matters

2. Allocation of quantity of resources

Audi strategy helps in allocating the appropriate number of resources to specific areas

3. Timing of deployment of resources

Audit strategy helps in determining the timing of deploying the resources

4. Management of resources

Audit strategy helps in managing directing supervising the resources such as when team briefing about
subject matter or work related to audit.

 Establishment of Overall Audit Strategy /Factors to Consider In establishing the overall audit
strategy

 Ascertain the reporting objectives of the engagement to plan the – 1-timing of audit and 2-nature of
the communications required
Some examples-
 Entity’s timetable for reporting
 What matters to report
 Type of report
 To whom report should be communicated
 Nature and timing of team meeting and review of work performed

 Identify the characteristics of the engagement that define its scope

For example,
 Applicable FRF of entity
 Which type of engagement (internal audit, stat audit, review etc.)
 Audit for whole entity or for a particular segment
 Whether another auditor involved i.e. joint audit

 Consider the significant factors during the audit - for directing the engagement team’s efforts
For example,
 Volume of transaction to be check to determine reliance on ics
 Change in FRF
 Recent development in industry or environment

 Consider the results of preliminary engagement activities

 Ascertain the nature, timing and extent of resources necessary to perform the engagement

 RELATIONSHIP BETWEEN OVERALL AUDIT STRATEGY AND AUDIT PLAN

  Audit strategy is a broad framework whereas audit plan is more detailed plan, strategy provide
guideline to develop audit plan and
 Audit strategy and audit plan are not discrete or sequential process, both are closely related.
Change in one may result change in other.

Audit plan

Audit plan is developing an audit programme showing the nature timing and extent of audit procedures

 Audit plan shall include Description of-

 Determining NTE of risk assessment procedure SA 315

 Determining NTE of further audit procedure SA 330
 Other audit procedures as per SA

 Audit planning is a continuous process

Planning is not discrete phase of audit but a continual and iterative process that often begins shortly after
the completion of the previous audit and continues until the completion of current audit

 Planning needs to consider

 Perform Risk assessment procedure

 General understanding of entity and its environment
 Understanding of internal control system
 Determine materiality
 Involvement of expert

 DEVELOPMENT OF AUDIT PLAN

Factors to be considered in the development of overall audit plan/ Establishing the overall audit strategy

 T Terms of auditors engagement

 R Result of risk assessment procedure
 A Applicable laws or Statutory requirements
 I Identification of significant audit areas
 N Nature, timing & extent of reports
  I Involvement of other auditor
 N Nature, timing & extent of audit evidence obtained
 G Get knowledge of client business
 D Degree of reliance to be placed on the accounting system and internal control
 A Allocation of work
 Y Yardstick or conditions requiring special attention
 S staff requirement

 DIRECTION, SUPERVISION AND REVIEW

The auditor shall plan the nature, timing and extent of direction and supervision of engagement team
members and the review of their work

It is depending on many factors, including:

 The size and complexity of the entity.

 The area of the audit.
 The assessed risks of material misstatement
 Capabilities and competence of team members

 CHANGES TO PLANNING DECISIONS DURING THE COURSE OF THE AUDIT

 unexpected events
 changes in conditions,
 the audit evidence obtained from the results of audit procedures

AUDIT PROGRAMME

An audit program consists of a series of verification procedures to be applied to the financial statements
of company for obtaining sufficient evidence to enable the auditor to express an informed opinion on such
statements.

Audit programme is a detail plan of applying the audit procedure

 Significant point/ Developing /Drafting / construction of audit program

 Audit program should be in written.

  Stay within the scope and limitation of the assignment.
 Determine the evidence reasonably available and identify the best.
 Apply only those steps and procedures which are useful in accomplishing the verification purpose.
 Consider all possibilities of error.
 Co-ordinate the procedures to be applied.

Extra notes – the primary task of auditor before he draws audit program, he should use his experience and
knowledge to design audit programme which provides best audit evidence

 Advantages

1- it provides assistant to team and set instruction on how work is to be done

2- provide total perspective of the work to be done
3- help in selection of those assistant which are capable to perform difficult audit programme
4- audit programme is in written so, danger of ignoring or overlooking certain procedure or records are
less
5- it helps in fixing the responsibility of assistant
6- it works as a checklist i.e. it tells - how much work is completed
7- it forms as a base for future audit
8- it acts as a evidence against charge of negligence

 Disadvantages

i. The work may become mechanical, rigid and inflexible.

ii. Insufficient staff may take shelter behind the programme.
iii. Audit becomes monotonous.
iv. Lack of independent judgment and initiative from efficient staff.

 Measures to remove disadvantages

i. Create audit program more flexible

ii. Make changes during audit program during audit depending upon evidence
iii. Encourage staff to give input and take review from them

 Other points
 1. Evolving one audit program

Business may vary in nature size and composition, work which is suitable for one business may not suitable
for other. Evolving one audit program for all business is not practicable in all circumstances

2. Periodic review

There should be periodic review of the audit program to assess whether the same continues to be
adequate for obtaining requisite knowledge and evidence about the transactions.

3. Assistant should be encouraged to keep an open mindedness

The assistant engaged in the job should be encouraged to keep an open mind beyond the programme given
to him. He should be instructed to note and report significant matters coming to his notice.

As per his experience if anything in audit program is unnecessary or irrelevant, he may exclude or drop
that programme.

Note – the auditor may decide to discuss element of planning with the management to facilitate better
coordination but it is a responsibility of auditor that while discussing audit strategy and plan proper care is
required in order to not to compromise the effectiveness of the audit.