Module for: Audit Planning, Supervision, and Monitoring

Schedule: Week 8: October 1 - 2, 2020: Week 9: October 8 – 9, 2020

Overview
Auditing is a systematic process, which necessarily need to be planned, supervised, and
monitored so that the objectives can be achieved within the given time frame. Planning for
every audit is required to adhere to the audit quality and standards (PSA 300), as well as
be prepared in the eventualities during the audit implementation since business activities
are complicated due to the risk in the business environment, legal issues, unique features
of a particular business.

The conduct of audit involves planning for the overall strategy of the engagement, and
planning of activities to reduce the audit risk to minimum and acceptable level. This
process requires the involvement of the engagement partner(senior auditor), and all the
member of the engagement team.

Failure to understand the topics contained in this module can hamper the understanding
and comprehension of the succeeding topics, as this module contains the basic
information and knowledge to link all the succeeding topic as a whole body of knowledge
for Assurance Engagement, which encompasses the attestation, audit, and other related
assurance services.

Learning Outcome
At the end of this module, the students should be able to:
● Discuss the objectives of the planning for conduct of audit engagement.
● Identify and discuss the standards that cover the audit planning.
● Discuss the importance of obtaining the understanding of the clients and its economic
and legal environment.
● Discuss the importance of the analytical procedure in the audit planning.
● Discuss and assess contents of the audit plan and audit program.

Pre-assessment/Self-Assessment
The purpose of the Self-Assessment is to determine your present knowledge about the topic
that that will be discussed in this module. This is should be answered honestly so that the
faculty handling this course/topic can adjust the discussion and level of interaction with the
students. This will be submitted immediately upon the receipt of this module, and should also
be answered after studying and conducting all the activities in this module. The ratings used
the following scale that represent the degree knowledge and level of competency.
4 – Understand the topic, with high degree of confidence to explain and teach other students
3 – Able to discuss the topic, with low degree of confidence to explain and teach other
student.
2 – Understand some concept and some idea about the topics.
1 – No prior knowledge of the topic

Concepts/Topic 4 3 2 1
Before After Before After Before After Before After
General objective of the
audit planning
Auditing standards for
audit planning
The process of obtaining
understanding of audit
clients.
The analytical procedures
used in planning the audit
Contents of the audit plan
and audit program

Activities/ Tasks
Synchronous Activities
There will schedule online meeting through Google Meet on August 14, 2020 to discuss the
introduction of this lesson as well to discuss important concern for this topic including the required
output and assessment.

Asynchronous Activities
After the online meeting, students will download and read the module for this topic, watch video
presentation from the link provided, prepare and submit their assignment on or before the deadline.
Group’s collaborative actions is also part of this asynchronous activities.

Topic: Audit Planning, Supervision, and Monitoring

The Objective in planning an audit engagement
 Basically, the main objective of conducting a planning process for audit engagement is to make
sure that the audit team will achieve the aim of the audit, that is to express an opinion regarding the
fairness of the preparation of the financial statements.

The standard planning process are the following

The process for audit planning includes the following procedures
● Obtaining an understanding of the client and its environment.
● Assessing the possibility of non-compliance and legal issues.
● Establishing materiality and assessing the audit risk.
● Identifying the related parties.
● Performing the preliminary analytical procedures
● Determining the need for experts.
● Development of the overall audit strategy and detailed audit plan.
● Preparation of preliminary audit programs with provision for supervision and
monitoring.

Obtaining an understanding with the clients, and its environment.

An auditor obtains an understanding of the clients and its environment by performing the
following risk assessment procedures:
● Inquiries directed towards management and other relevant parties.
● Inspections of accounting and legal documents.
● Observations of the client’s personnel, and actual procedures and processes.
● Conducting initial analytical review procedures.

The Analytical Review Procedures in the Planning Stage

Analytical procedures used during the planning stage assist the auditor in understanding the
client, business environment where the business operates, and identify the potential risk. It uses both
financial and non-financial information, as it studies the plausible relationship of the financial and
non-financial data. It focuses more on financial ratios, observation, and non – detailed analysis of
basic financial information.

The Audit Plan and Audit Program

An audit plan contains the detailed activities to be performed and guided by the overall audit
strategy. This contains the description and nature, timing, and extent of planned risk assessment
procedures, further audit procedures (the test of control and substantive tests) at the assertion level
for each material class of transactions, account balance, important disclosure, and other audit
procedures necessary to comply with the PSA.
Audit program serves as a set of instructions to assistants involved in the audit and as a means
of control and record the proper execution of the work during the actual engagement process.
Generally, the audit program contains the audit objectives for each area, the audit procedures to be
performed to achieve the objectives and the budgeted time to complete the examination.
The purpose of the audit program preparation:
● Compliance with the PSA’s
 ● Serves as instruction to assistants involve in the audit engagement, and basis for
monitoring and supervision.
● Documentations for the audit planning and actual audit activities.
● Used as control measures for the engagement by monitoring the completion of the
audit procedures.
● Serves as an evidence that the audit procedures have been completed.

Time Budget and Timing of the Conduct of Audit

An audit engagement needs to be cost effective to make it a viable undertaking, hence
auditors use the time budget to convert the audit fee into workable number of hours for the whole
audit engagement. The number of hours is usually allocated for each team members and to each
audit areas. The allocation of the time for engagement also take into consideration the high risk areas,
since the current approach in audit is risk-based audit.
The time budget identifies and allocate time for each program items, but it does not specify
when or in what order the audit work must be conducted. Thus, additional part of the planning
process of the engagement is to decide the dates and the appropriate time for various phases of the
audit. This is very important when an element of surprise is necessary in the conduct of the audit
process special to those high-risk areas.

Staffing and Supervision

The audit engagement requires assignment of work to personnel who have the degree of
technical training and proficiency required of the circumstances. Hence, audit assistants whom the
work is delegated or assigned need appropriate direction (as stated in the audit program) and
supervision to ensure that the have the necessary skills and competency to carry out their assigned
tasks, and that they conducted the audit work in accordance with the audit programs.
The following are several elements of the supervision that should be performed during the
audit engagement
● Instructing the assistants
● Keeping informed of significant problems encountered in accounting and auditing
process.
● Reviewing the work performed by assistant auditor
● Dealing with difference in opinion regarding audit findings and observations.

Post Assessment
1. Why understanding of the client and its environment is crucial in the planning of audit
engagement?
2. Explain the difference of audit strategy, audit plan, and audit program?
3. What is an analytical review procedures and how it can be useful during the planning stage of
the audit?
4. Assuming that you are a senior auditor, how can you effectively conduct the supervision and
monitoring of your audit assistant?

References
Bobadilla, A., & Ocampo, R. (2016). Comprehensive Review in Auditing Theory
Cabarles, L., Ocampo, R., & Valdez, R. (2019). Auditing: A Risk-Based Approach, Part 1 – Theory
Ireneo, J., Ireneo, S., & James, G., (2018). Audit and Assurance Principles.
Ng, M.F., (2012). Auditing and Assurance: Principles, Standards, and Fundamentals.