Audit Programs

Chapter 5

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 1

The Purpose of Internal Audit Program
Internal audit program is a guide to the auditor and a
compact with audit supervision that certain audit
steps will be taken
The audit steps are designed
To gather audit evidence
To express auditor’ opinions on the efficiency, economy
and effectiveness of the activities to be reviewed
To meet audit objectives

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 2

The Benefit of Internal Audit Program
A systematic plan for each phase of audit
Communication between supervisor and audit staff
A basis for assigning work to auditors
Budgeting time, controlling and evaluating audit
progress
Compare what was performed and planed
Training inexperience staff
A summary record of work done
Help subsequent auditors
Reducing direct supervision
Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 3
When to Prepare the Internal Audit
Program
Audit program is the link between preliminary survey and
field work.
The results of preliminary survey, internal auditors identify ;
operating objectives, risks , operating conditions and
controls
Immediately after the preliminary survey
Too late may have gaps and inadequacies to establish proper
priorities
Considered tentative audit programs
Pro forma programs  on repeat audits of similar
operations
Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 4
Audit Responsibilities
 Internal auditors are responsible to prepare audit programs
 Audit program is a planning audit assignment that should be
documented and should include :
Audit objectives and scope
Background information
Resources to perform audit
Who need to know about audit
Activities and controls to be audited
Areas for audit emphasis
Client comment and suggestions
Writing the audit program
Audit results to be communicated
Approval of the audit work plan

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 5

Audit Scope
Identify the scope of audit work clearly
The examples of audit work scope based on the
business cycles
Revenue cycle
Expenditures cycle
Production cycles
Human resources and payroll cycles
Financing and repayment cycles

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 6

Economy, Efficiency, Effectiveness
Economy : prudent management of resources to use
the best advantage without waste
Efficiency : minimizing the loss or waste of energy 
input compared to output
Effectiveness : actual production compared to
planning or budget

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 7

Operating Objectives and Procedures
Auditors should understand :
The operating objectives of the activities to be audited,
and
What procedures would be performed to meet the
operating objectives

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 8

General Audit Objectives and Procedures
 Accounting and financial matters only
The reliability and integrity of financial information
Compliance to regulation, laws, policies, procedures
Safeguarding of assets

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 9

Specific Audit Objectives and Procedures
Advertising
Asset disposals
Employee medical contribution
Environment protection and alarm devices
Inventories
Land acquisitions
Not-for profit activity
Payables

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 10

Specific Audit Objectives and Procedures
 Payrolls
Pricing
Production
Purchasing
Quality
Rental property
Research and development
Sales

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Preparing The Audit Program
Understand the background information
The result of preliminary survey
What to audit and what not to audit
Consider the auditor responsible to prevent fraud,
misconduct and error,
Risks within the organization
Write audit objectives
Write audit procedures to achieve the audit objectives

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 12

Examples of Audit Program
 Audit Program for Purchasing Department (Exhibit
5-1)
 General audit objective is to determine:
At the right price
At the right time
At the right quantity
Of the right quality, and
In right place

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 13

Examples of Audit Program
 Audit Program for Marketing Department (Exhibit 5-
2)
 General audit objective is to obtain the right goods
services;
The market potential (market research)
Develop consumer attitudes
Induce distributors to give extra attention to the sales of
organization

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Instructions in Audit Procedures = Work
Step of Audit
Analyze
Check
Confirm
Evaluate
Inspect
Investigate
Review
Scan
Substantiate
Test
Verify

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 15

Guidelines for Preparing Audit Programs
Review prior reports
Perform preliminary survey
Review policies and procedures , manual in internal audit
department
Review current internal audit issues
Prepare a flowchart of key operations of the function to be audit
Review performance standards
Interview the clients and discuss the scope of audit
Prepare audit budget
List material risks to be considered
Identify the control for each risk

Ahmad Adri, Drs. Ak., MBA.,CA.,CPA 16

Criteria for Audit program
State audit objectives carefully and agreed to by the client
Should be tailor-made to the audit assignment
There is a reason behind each work audit step
Work steps should include positive instructions
Indicate the relative priority of the work steps
Should be flexible
Avoid unnecessary information
Evidence of supervisory approval
Meet a certain test that asked by management

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