AUDIT PLANNING

Three main reasons why auditors should properly plan engagements:

‡ Enable the auditor to obtain sufficient appropriate evidence for the circumstances . ‡ Help keep audit cost reasonable. ‡ Avoid misunderstandings with the client.

Planning an AUDIT Design

Accept client and perform initial audit planning

Understand the client s business and industry

Assess client business risk

Perform preliminary analytical procedures

Initial audit planning involves four things that should be done early in the audit:
‡ The auditor decides whether to accept a new client or continue serving an existing one. ‡ The auditor identifies why client wants an audit. ‡ The auditor obtains an understanding with the client about the terms of the engagement to avoid misunderstandings. ‡ The auditor develops an overall strategy for the audit, including engagement staffing and any required audit specialists.

The following matters need to be considered to formulating a documented plan:

‡ ‡ ‡ ‡ Knowledge of the entity's business Risk and materiality Nature, timing and extent of audit procedures Co-ordination, direction, supervision and review of the audit

An audit plan should be viewed as a structured plan of action mapping out the audit procedures to be carried out with the aim of reporting on whether a specified set of accounts show a true and fair view.

Examples of Auditor s Procedures for Audit Planning

‡ Reviewing correspondence files, prior year s audit documentation, permanent files, prior years financial statements, and auditor s reports. ‡ Discussions with firm personnel responsible for non-audit services to the client. ‡ Asking about current business developments affecting the entity. ‡ Reading current interim financial statements. ‡ Discussions with management and the board of directors, or its audit committee, about the type, scope, and timing of the audit.

Cont d..
‡ Considering implications of relevant accounting and auditing pronouncements, particularly recent pronouncements. ‡ Coordinating the assistance of client personnel in preparing data and schedules. ‡ Determining the involvement of consultants, specialists, and internal auditors. ‡ Establishing the timing of audit work. ‡ Establishing and coordinating staffing requirements. ‡ Reviewing various sources of industry information, such as AICPA guides, industry publications, and annual reports of other entities in the industry.

SUMMARY
‡ Planning is an integral part of the audit process. Whilst the audit procedures carried out on specified audits will vary depending on the nature, size and complexity of an entity's operations, good audit planning is crucial if an auditor wishes to ensure that an audit is carried out in an effective, efficient and timely manner.