FSBCOM-III

An audit programme consists of a series of verification procedures

to be applied to the financial statements and accounts of a given

company for the purpose of obtaining sufficient evidence to enable

the auditor to express an informed opinion on such statements.

 Audit programme is generally contained in the audit notebook and is
invariably in black and white.

SA 300, Planning an Audit of Financial Statements suggests that the

auditor should prepare a written audit programme setting forth the
procedures that are needed to implement the audit plan. One audit
programme is prepared for a particular audit.

Stettler defines it as,

“An outline of all procedures to be followed in order to arrive at an opinion
concerning client’s financial statements.”
Businesses vary in nature, size and composition; work which is
suitable to one business may not be suitable to others; efficiency
and operation of internal controls and the exact nature of the
service to be rendered by the auditor are the other factors that
vary from assignment to assignment.

On account of such variations, evolving one audit programme

applicable to all business under all circumstances is not practicable.
An auditor having regard to the nature, size and composition of the
business and the dependability of the internal control and the
given scope of work, should frame a programme which should
aim at providing for a minimum essential work which may be
termed as a standard programme.

As experience is gained by actually carrying out the work, the

programme may be altered to take care of situations which were
left out originally, but are found relevant for the particular concern.
Similarly, if any work originally provided for proves beyond doubt
to be unnecessary or irrelevant, it may be dropped.

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, to his seniors or to the partners or proprietor of the firm
engaged for doing the audit.
There should be periodic review of the audit programme to assess
whether the same continues to be adequate for obtaining requisite
knowledge and evidence about the transactions.

Unless this is done, any change in the business policy of the client
may not be adequately known, and consequently, audit work may
be carried on, on the basis of an obsolete programme and, for this
negligence, the whole audit may be held as negligently conducted
and the auditor may have to face legal consequences.
• It is Set of procedures to be followed to support an opinion on
financial statements.
• It is invariably in black and white.
• It is the auditor’s plan of action.
• It is a scheme according to which the audit work will be distributed
among the audit staff.
• It enable auditor to delegate work to audit staff as per their
capabilities.
• It enables the auditor to specify the work to be done and the manner
in which it should be completed within estimated time.
• It determines the various audit techniques to be adopted and applied
for conducting the audit in efficient and effective manner.
 Exact scope of the duties of an auditor.
 Books of original entry and ledgers in use.
 The system of bookkeeping employed and its weaknesses (if any).
 System of internal check and the extent of it’s reliability.
 Special provisions contained in the legal documents affecting the
duties of the auditor.
 General nature and routine of the business.
1) The audit programme lists down areas of audit before
commencement
2) Audit programme covers the audit timings and hence it becomes a
schedule of audit plan.
3) Audit programme allocates the work among the staff members and
thereby fixes a responsibility over them.
4) It specifies the procedures to be performed during the audit.
5) Audit programme acts as a check list during the performance of
audit.
6) The working papers of the audit staff can be reviewed against the
audit programme to evaluate the performance before reporting on
the financial statements.
7) It also works as a basis for billing the clients for the time and
manpower involved in the audit.
1) To integrate and co-ordinate the different parts of the audit work.
2) To ensure the uniformity in the performance of audit work to
avoid duplications of work.
3) To have a fair allocation of audit job amongst audit staff.
4) To ensure the completion of audit work within a time frame.
5) To fix the responsibility of each member of the audit staff.
6) To provide a proof of completion of a particular audit work, the
dates on which it was completed, who performed it and how was
this done.
i. Name of the company
ii. Nature of operations of the company
iii. A review of the system of Internal Check
iv. Date of commencement of audit
v. Tentative period of audit exercise
vi. Accounting system followed by the company for recording its
financial transactions
vii. Preparation of the audit report
viii. Instructions as mentioned by previous year’s auditor in his audit
report
ix. Schedule of checking of various subsidiary books including
journal properly.
x. Schedule of checking ledger accounts including profit and loss
account items and balance sheet items.
Instruction to It provides the assistant in carrying out the audit with total and
Assistant clear set of instructions of the work generally to be done.

Idea of total It is essential, particularly for major audits, to provide a total

work perspective of the work to be performed.
Capable of Selection of assistants for the jobs on the basis of capability
Assistant can becomes easier when the work is rationally planned, defined and
be selected segregated.

Danger of Without a written and pre-determined programme, work is

ignoring necessarily to be carried out on the basis of some mental plan. In
eliminating such a situation there is always a danger of ignoring or
overlooking certain books and records. Under a properly
framed programme, the danger is significantly less and the
audit can proceed systematically.
Responsibility The assistants, by putting their signature on programme, accept
of assistants the responsibility for the work carried out by them individually
Fixed and, if necessary, the work may be traced back to the assistant

Progress of The principal can control the progress of the various audits in
audit can be hand by examination of audit programmes initiated by the
controlled assistants deputed to the jobs for completed work.

Guide for It serves as a guide for audits to be carried out in the succeeding
future audit year.
Serves as A properly drawn up audit programme serves as evidence in
evidence the event of any charge of negligence being brought against
the auditor. It may be of considerable value in establishing that
he exercised reasonable skill and care that was expected of
professional auditor.
Audit The work may become mechanical and particular parts of the
becomes programme may be carried out without any understanding of the
mechanical object of such parts in the whole audit scheme.
Programs The programme often tends to become rigid and inflexible
may following set grooves; the business may change in its operation of
become conduct, but the old programme may still be carried on. Changes
ineffective in staff or internal control may render precaution necessary at
points different from those originally decided upon
Inefficient Inefficient assistants may take shelter behind the programme
assistants i.e. defend deficiencies in their work on the ground that no
may instruction in the matter is contained therein.
escape
Efficient A hard and fast audit programme may kill the initiative of efficient
assistants assistants.
creativeness
effected
 Audit Plan Audit Programme
Meaning Audit plan refers to the Audit programme is the list of
strategies or guidelines which steps, that are to be followed
are followed by the auditor for by audit staff to obtain
conducting audit. sufficient audit evidence.

Indirectly Basic principle of audit. Series of examination and

considered verification steps.

Step First Second

An audit notebook refers to a record of some important and
pertinent information gathered or experienced prior to or during
the course of audit.

While conducting an audit, the auditor comes across certain points

which require further clarification, explanation and investigation
and he records the same in a dairy maintained for the purpose
known as audit notebook.

It contains significant audit observations, Objections, queries

raised and replies received thereto, correspondence with the client
etc.
The audit notebook is maintained by audit assistants. It is a written
and systematic record of the queries made by them and the replies
thereto. Besides this details affecting the audit work are also
included. Audit notebook may be in the form of bound register or
loose sheets filed together.
1) Audit programme: It is set of procedures to be followed to support an opinion
on financial statement.
2) Audit review notes: During the conduct of audit, certain points do require
further elucidation and discussion with the management. Therefore notes are
taken during the conduct of audit.
3) Audit queries: During the conduct of audit, a complete record as to how quires
were cleared and those, which remained unclear and also reported to
management, is also maintained.
4) Important balances: A note of the important closing balances should be noted
so that after the work has been done alterations if any, in the closing balances
may not be carried out.
5) Extracts from documents: Extracts from MOA and AOA, agreements, contracts,
minutes of the proceedings of the directors or shareholders, etc must be noted
in the audit notebook for ready reference.
6) Accounting statistics: It has relation/connection with pages of each book of
original entry and the number of the vouchers checked during the audit work
for increasing the audit fees in context of work of last year.
1) All the significant information affecting the audit are recorded,
which may be of considerable use at the time or preparation of
audit reports as well as successive audit.
2) It ensures uniformity and to what extent work has been completed
can be identified at a particular point of time.
3) It serves as source of information about the audit work and the
points which deserve special attention.
4) It ensures audit programme has been followed sincerely.
5) It will be helpful in investigation of any deviation (if found out) on
early stage.
6) It helps the auditor in judging the efficiency of his staff.
7) It facilitates smooth conduct of audit.
Audit working papers refers to all documents prepared or gathered
by the auditor, relating primarily to set of accounts being audited.

Working papers are the connecting link between the client’s records
and audited accounts. These include all the evidence gathered by
the auditor indicating what work has been done by him &
procedure he has followed in verifying a particular assets or liability.
These would come to the help of the auditor in future in case the
client file a suit against the auditor’s negligence.
1) To provide auditor with the basis for conclusion about the audit.
2) To ensure that audit was planned & performed as per SAs and
with all applicable legal and regulatory requirements.
3) To assist the engagement team to plan and perform audit.
4) To retain records for future audits.
SA 200 (Revised), Overall Objectives of the Independent Auditor
and Conduct if an Audit in Accordance with Standards on
Auditing, states that, “ The Auditor should document matters
which are important in providing evidence that the audit was
carried out in accordance with the basic principles”. This reflects
the significance of audit papers.
a. Helps in planning and performance of the audit work.

b. Helps in supervision and review of the audit work

c. Provide evidence of the audit work performed to support the auditor’s

opinion

d. Facilitate delegation of work

e. Maintain secrecy and safe custody of facts discovered during audit

f. Identify points, documents, policies or transactions which require

particular attention in future.
 Working papers are normally divided between the following two
files:
1) Current files and
2) Permanent files
A current file contains information primarily relating to the set of
accounts subject to audit during the current year. Some of the
examples of audit working papers to be placed in a current file.
Sr. Particulars
No
1 Correspondence relating to acceptance of annual appointment
2 Evidence of planning process of the audit and audit programme
3 Methods of review of Internal Control e.g. Narrative records
(complete description of records), check list (series of instructions),
Question-naire, and Flow chart
4 Analysis of transactions and balances
5 Evidence that the work performed by assistants was supervised and
reviewed
Sr. No Particulars
6 Copies of communication with other auditors, experts and third
parties
7 Letters of confirmation received from the client.
8 The working trail balance, bank reconciliation statement
9 Copies of letter or notes concerning audit matters communicated to
or discussed with client including terms of engagement and material
weaknesses in Internal Control
10 Conclusion reached by the auditor concerning related aspects of the
audit
11 Copies of financial information being reported on and the related
audit reports
Sr. No Particulars
1 Information containing the legal and organizational structure of the
entity such as memorandum and articles of association in case of a
joint stock company and other appropriate regulations
2 Extracts or copies of important legal documents, agreements and
minutes
3 Analysis of significant ratios and trends
4 Notes regarding significant accounting policies
5 A short description of the type of business carried on and the places
of business

Thus, a permanent file contains papers and information, which are

of considerable use and important for the succeeding audits.
Planning in auditing encompasses developing an overall plan for the expected
scope and conduct of the audit and developing an audit programme showing the
nature, timing and extent (NTE) of audit procedures.

The audit planning is necessary to conduct an effective audit in an efficient and

timely manner.

Plans should be made to cover, among other things:

(a) acquiring knowledge of the client's accounting systems, policies and internal
control procedures:
(b) establishing the expected degree of reliance to be placed on internal control;
(c) determining and programming the nature, timing, and extent of the audit
procedures to be performed; and
(d) coordinating the work to be performed.
1. Attention to Important Areas
2. Timely resolution of Potential Problems
3. Proper Organisation and Management of Audit
Engagement
4. Proper Selection of Engagement Team
5. Direction & Supervision of ET – Review of work also
6. Coordination
 Description of audit plan - As per SA 300 'Planning an Audit of
Financial Statements" the audit plan shall include a description of the
nature, timing and extent of planned risk assessment procedures, as
determined under SA 315. It should also provide details of further audit
procedures as determined under SA 330 and Other planned audit
procedures that are required to be carried out so that the engagement
complies with SAs.
 Knowledge of client’s business - SA 315 on, "Identifying and
Assessing the Risks of Material Misstatement through Understanding
the Entity and its Environment" states that in performing an audit of
financial statements, the auditor should obtain knowledge of the
business sufficient to enable the auditor to identify and understand the
events, transactions and practices that, in the auditor's judgment, may
have a significant effect on the financial statements or on the
examination or audit report.
Planning – a continuous process - Planning is not a discrete phase
of an audit but rather a continuous process. It often begin shortly after (or
in connection with) the completion of the previous audit and continues
until the completion of the current audit engagement.
Planning, however, includes consideration of the timing of certain

activities and audit procedures that need to be completed prior to the

performance of further audit procedures
Changes to Planning decisions - The auditor shall update and change
the overall audit strategy and the audit plan as necessary during the course of
the audit. The auditor may need to modify the overall audit strategy and audit
plan as a result of:
1. unexpected events,
2. changes in conditions, or availability of the information
3. the audit evidence obtained from the results of audit procedures.
Based on the revised consideration of assessed risks, auditor need to modify the
nature, timing and extent of further audit procedures.
• Terms of his engagement and any statutory responsibilities,
• Nature and timing of reports or other communications.
• Applicable Legal or Statutory requirements.
• Accounting policies adopted by the clients and changes, if any,
in those policies.
• The effects of new accounting and auditing pronouncement
on the audit.
• Identification of significant audit areas
• Setting of materiality levels for the audit purpose.
• Degree of reliance to be placed on the accounting system and
internal control.
• Conditions requiring special attention such as the possibility of
material error or fraud or involvement of parties in whom
directors or persons who are substantial owners of the entity
are interested and with whom transactions are likely.
• Possible rotation of emphasis on specific audit areas.
• Nature and extent of audit evidence to be obtained.
• Work of the internal auditors and the extent of reliance on their
work, if any in the audit.
• Involvement of other auditors in the audit of subsidiaries or
branches of the client and involvement of experts.
• Allocation of works to be undertaken between joint auditors
and the procedures for its control and review.
 Audit strategy is concerned with designing optimised audit
approaches that seek to achieve the necessary audit assurance at
the lowest cost within the constraints of the information
available.
 Benefits of Audit Strategy:
1. Audit strategy helps in deploying the appropriate resources for
specific audit areas, such as the use of experienced team
members for high risk areas
2. Audit strategy helps in allocating the appropriate number of
resources to specific audit areas, such as the number of team
members assigned to observe the inventory count at material
locations.
3. Audit strategy helps in determining the timing of deploying the
resources, such as whether at an interim audit stage or at key cut
off dates.
4. Audit strategy helps in managing, directing, supervising the
resources and whether to complete engagement quality control
reviews.
udit strategy and audit plan are inter-related to each other because
change in one would result into change in the other.

he audit strategy is prepared before the audit plan. The audit plan
contains more details than the overall audit strategy.

he audit strategy provides the guidelines for developing the audit plan.

udit strategy establishes the scope, timing and direction of the audit
and thereby works as basis for developing a detailed audit plan whereas
detailed audit plan would include the nature, timing and extent of the
audit procedures so as to obtain sufficient appropriate audit evidence.
 As per SA 300 "Planning an Audit of Financial Statements" In
establishing the overall audit strategy, the auditor shall:
1. Identify the characteristics of the engagement that define its
scope;
2. Ascertain the reporting objectives of the engagement to plan
the timing of the audit and the nature of the communications
required
3. Consider the factors that are significant in directing the
engagement team's efforts
4. Consider the results of preliminary engagement activities and,
where applicable, whether knowledge gained on other
engagements performed by the engagement partner for the
entity is relevant;
5. Ascertain the nature, timing and extent of procedures necessary
to perform
 Audit Documentation refers to records of:
1. audit procedures per formed
2. relevant audit evidence obtained, and
3. conclusions the auditor reached.
Note :Audit documentation comm only known as working papers
 The Auditor is required to prepare documentation that provides:
(a) a sufficient and appropriate record oftI1e bas1s for the auditor's report; and
(b) evidence that the audit was planned and performed in accordance with SAs and
applicable other regulatory requirements.

 Audit documentation serves a number of purposes , including the following:

1. Assisting the engagement team to plan and perform the audit
2. Assisting members of the engagement team responsible for supervision to direct
and supervise the audit, and to discharge their review responsibilities.
3. Enabling the engagement tea m to be accountable for its work
4. Retaining a record of matters of continuing significance to future audits
5. Enabling the conduct of quality control reviews and inspections
6. Enabling the conduct of external Inspections in accordance with applicable legal,
regulatory or other requirements
 Audit documentation may be recorded on paper or on electronic
or other media. Examples of audit documentation Include:
 Audit programmes.
 Analyses.
 Issues memoranda.
 Summaries of Significant matters.
 Letters of confirmation and representation.
 Checklists
 Correspondence (Including e-mail) concerning significant

matters.
The auditor may Include abstracts or copies of the entity’s records
(for example, significant and specific contracts and agreements)
as part of audit documentation.

Retention Period: 7 years from the date of audit report.

 Audit Evidence is termed as information used by the auditor
in arriving at the conclusions on which the auditor’s opinion
is based.
 Audit evidence includes both information contained in the
accounting records underlying the financial statements and
information obtained from other sources.
 The auditor shall design and perform audit procedures that
are appropriate in the circumstances for the purpose of
obtaining sufficient and appropriate audit evidence.
Sufficiency: refers to the quantity of audit evidence.
Appropriate: refers to the quality of audit evidence i.e, relevance and
reliability
Relevance: it deals with the logical connection with the purpose of
audit procedures
Reliability: the trustworthiness of the audit evidence obtained.
Reliability is influenced by its source and its nature.
1. Inspection
2. Observation
3. External Confirmations
4. Recalculations
5. Re-performance
6. Analytical Procedures
7. Inquiry
Types of Audit Evidence
Depending on source:
1. Internal Evidence
2. External Evidence
Depending on nature:
1. Documentary Evidence
2. Visual Evidence
3. Oral Evidence