Audit Planning

&
Audit Sampling
 Audit Planning

Audit Planning is the process of deciding in

advance what is to be done, who is to do it,
how it is to be done and when it is to be done
by the auditor in order to have an effective and
efficient completion of Audit.
 Audit Planning – Cont’d

According to AAS-8 , “ Audit planning refers to

planning by the auditor made to enable him to
conduct an effective audit in an efficient and
timely manner, and includes planning about area,
scope, depth of transactions to be audited, time to
be devoted and persons to be deployed for audit”.
 Preparatory Steps before
commencement of Audit
1. Receiving appointment letter

2. Communication with existing auditor

3. Acceptance of appointment

4. Ascertaining the scope of audit

5. Knowledge about the organization

6. Knowledge of the accounting system

Preparatory Steps before
commencement of Audit – cont’d
7. Complete list of Principal officers

8. Knowledge of technical details

9. Observation of the previous auditor’s

report

10. Instructions to clients

 Audit Methodology

Audit methodology is a particular set of

procedures used to assess company’s financial
and business risk. Audit methodologies typically
consist of four parts, including a preliminary risk
assessment, planning stage, testing phase and an
exit meeting
 Audit Methodology

Preliminary Risk Assessment

The Planning stage

The Testing phase

The Exit Meeting

 Audit Engagement Letter

 Audit engagement letter is a letter issued by the auditor to

his client in response to the appointment for the new audit
assignment. It is an acceptance of appointment stating the
objective and scope of audit, the extent of responsibilities
and the form of report to be made to the client.
 In Bangladesh, BSA 210 deals with audit engagement
letter. It is found to conform to generally accepted
procedures and ISA.
 Audit Engagement Letter – cont’d

Contents of Audit Engagement Letter includes:

1. The objective of the audit of Financial Statement
2. Management responsibility for the financial statements
3. Management responsibilities for selection of appropriate
accounting policies.
4. Management responsibilities for preparing the accounts on
a going concern basis
5. The scope of audit
6. The right of unrestricted access to records and information
etc.
 Audit Test
•Audit Testing procedure is important in the auditing
process. In the context of Standard of Field Works
under GAAS , one of the essential of audit is to obtain
sufficient, competent evidential matters. For
minimizing audit risk & ensure reasonable reliance ,
auditor has to apply generally accepted & used audit
tests. There are two general type of audit Test :
•A) Test of Control
•B) Substantive Procedure
 Test of Control
•Test of control process are designed to provide
evidence about the operating effectiveness of various
aspect of internal control.
 Substantive Tests
•Substantive process provide evidence about fair
presentation of Financial statements. Substantive test
include :
1. Initial Procedure
2. Substantive analytic procedure
3. Test of detail transactions
4. Test of details of Balances
5. Test of details of Disclosures
 Audit Samp[ling
Audit Sampling means the application of
compliance and substantive procedures to less
than 100% of the items within an account balance
or class of transactions to enable the auditor to
draw conclusion concerned population.
Objectives of Audit Sampling
Auditor is supposed to carry out procedure designed to
obtain sufficient appropriate audit evidence in order to
determine with reasonable assurance whether the
financial statements are free of material
misstatements.
 Sampling Risk
The sampling risk results from the fact that a
particular audit sample may not be representative of
the audit population tested.
Sampling risk arises both from compliance procedure
and substantive procedure.
In compliance procedure, risk arises due to over-
reliance or under- reliance of internal control.
 Sampling Risk - cont’d
In substantive procedure, risk from sampling are two
types :
a) risk of incorrect rejection
b) Risk of incorrect acceptance
 Stages of Audit Sampling
1. Audit Objectives
2. The Population
3. The Sampling unit
4. The definition of error in substantive procedure
5. The definition of deviation in compliance tests
6. The assurance required
 Stages of Audit Sampling –
cont’d
7. The tolerable error or deviation rate
8. Stratification
9. Selection of the item to be tested
10. Testing the item
11. Evaluating the item