Audit Management

 Audit planning, including audit programs

 Audit risks
 Staffing and controlling the audit work

DR INNOCENT SENYO KWASI ACQUAH

Audit Planning
Planning is a process of doing a job in a systematic and methodical manner.
Planning defines: (a) What to do? (b) How to do? (c) When to do? and (d)
Who will do? Planning is an organized approach to complete a task in a
minimum time at minimum cost and with maximum efficiency.
Planning is needed to coordinate the work and complete the assignment
effectively. It is a schedule of activity prepared in advance so that significant
areas receive the required attention, or the job is completed speedily, or the
work is allocated among the available staff properly.
It ensures that something, which is relevant, is not neglected. Planning,
therefore, controls progress and assists in achieving the target on time. It
also helps in enhancing the quality of output. It is thus the way to
promptness and perfection in performance.

DR INNOCENT SENYO KWASI ACQUAH

 Purpose of Planning
To work with each other and with the people who will carry out the plans

To clarify objectives

To set goals for each division
To establish policies and standard methods to guide those who do the work
To develop programs, strategies and schedules to keep the work moving towards the
objectives
To spell out how detailed the plans should be
To decide who should participate in formulating policies and
To determine how much freedom of action should be given to subordinates.
DR INNOCENT SENYO KWASI ACQUAH
 Considerations in Audit Planning
The Auditing Standards and Guidelines have placed considerable emphasis on audit
planning. It states that the auditor should adequately plan, control and record his work
at each stage of its progress. This is mainly to ensure that the audit is carried out
effectively and efficiently. The aim is to provide an efficient and economic service within
an appropriate time scale. The exact form and nature of audit planning, however, should
be governed by the following considerations:
Size and complexity of the company;
The commercial environment in which it operates;
The method of pressing transactions; and
The reporting requirements to which it is subject to.
A proper consideration of these factors will enable the auditor to appreciate the events
and transactions likely to have a significant effect on the financial statements. All this
helps in designing an appropriate audit approach to the assigned responsibility.

DR INNOCENT SENYO KWASI ACQUAH

Importance of Audit Planning

Establishes the intended means of achieving the objectives of the audit;

Assists in the direction and control of the work

Ensures that attention is devoted to critical aspects of the audit

Ensures that the work is completed expeditiously.

DR INNOCENT SENYO KWASI ACQUAH

Audit Flow Chart
The different stages involved in audit planning may be demonstrated through the
following. Audit Flow Chart, which shows the sequence of operations in audit
work

DR INNOCENT SENYO KWASI ACQUAH

Steps in Planning Procurement Audit
Basic discussions with the client about the nature of the engagement and the
client’s business and industry are performed first, and the auditor meets the
key employees, or new employees of a continuing client. The overall audit
strategy or the timing of the audit may be discussed, but not the specific audit
procedures.
Review of audit documentation from previous audits performed by the
procurement audit firm or a predecessor auditor (if the latter makes these
audit documentation available) will assist in developing an outline of the audit
program.
Ask about recent developments in the company such as mergers and new
product lines, which will cause the audit to differ from earlier

DR INNOCENT SENYO KWASI ACQUAH

Interim procurement records are analyzed to identify procurement
transactions that differ from expectations (based on factors such as budgets or
prior periods (procurement planning = actual cost of the contract – planned
contract cost). The performance of such analytical procedures is mandatory in
the planning of an audit to identify accounts that may be misstated and that
deserve special emphasis in the audit
Non-audit personnel of the procurement audit firm who have provided
services (such as tax preparation) to the client should be identified and
consulted to learn more about the
Staffing for the audit should be determined and a meeting held to discuss the
engagement.
Timing of the various audit procedures should be determined. For example,
internal control testing needs to be performed early in the engagement,
inventory counts need to be performed at or near the balance sheet date and
the client representation letter cannot be obtained until the end of the audit

DR INNOCENT SENYO KWASI ACQUAH

Outside assistance needs should be determined, including the use of a
specialist as required (a tax practitioner or an information technology (IT)
professional) and the determination of the extent of involvement of the internal
auditors of the client.
Pronouncements on procurement audit principles and audit guides should be
read or reviewed to assist in the development of complete audit programs fitting
the unique needs of client’s business and industry.
Scheduling with the client is needed to coordinate activities. For example,
client-prepared schedules need to be ready when the auditor is expected to
examine them, and the client needs to be informed of dates when they will be
prohibited from accessing bank safe deposit boxes to ensure the integrity of
counts of securities held at banks.

DR INNOCENT SENYO KWASI ACQUAH

 Audit Program
Audit program is an outline of procedures to be followed in order to arrive at an
opinion concerning the financial statements of a company

Main Features of Audit Program

It is a method of planning, supervising and controlling the audit performance.
It is a systematic approach to audit.
It is a planned procedure of examination and steps of verification.
It is a detailed plan of audit techniques to be adopted and applied for achieving
the objectives of audit.
Specifies the work to be done and the manner in which it should be completed
within the estimated time.
It shows the; tasks to be carried out and some relevant instructions to the audit
staff in respect of the extent of checking to be done for examination of evidence.

DR INNOCENT SENYO KWASI ACQUAH

 Benefits of Audit Program
Gives a clear set of instructions to the audit staff on the work to be carried out;
Provides an up-to-date record of 'the progress of the work;
Documents the names of the staff who performed the different sections of the
audit;
Offers an opportunity to the supervisors, auditors or their partners to review the
work done;
Avoids duplication of work;
Reduces the possibilities of getting a work overlooked;
Keeps an evidence of work performed against the charge of negligence;
Distributes the work among different levels of staff commensurating their
qualifications with the nature of the job to be done;
Enhances the efficiency of the audit staff;
Maintains continuity of audit work despite changes in the placement of the audit
staff.

DR INNOCENT SENYO KWASI ACQUAH

 Limitations of Audit Program
Makes the work almost mechanical - sometimes the work is done without
understanding the objectives behind it.
Gives rigidity of approach - the required flexibility to devote additional attention
to some critical areas becomes difficult.
Discourages personal initiatives or efficiency on matters, which demand some,
more time or energy.
Disclose to the company's staff the tests being performed and the part of the
work, which has already been completed.
DR INNOCENT SENYO KWASI ACQUAH
Audit Risk
Audit risk is the risk arising from carrying out audit work. It is the risk of the
auditor 'suffering loss' because of giving an inappropriate audit opinion. Is
related to materiality, as it is the risk that the auditor come to an invalid
conclusion in audit report. That is either
1. The audit report is unqualified but subsequently material error is found in
the financial statement. 
2. The audit report is qualified but subsequently no material error is found in
the financial statement
The greater audit risk is in (1) as it occurs more frequently and there is
greater risk of the auditor being sued for negligence than in (2). 

DR INNOCENT SENYO KWASI ACQUAH

Sources of Audit Risk
Not gathering appropriate audit evidence 
Being deliberately misled by those providing the evidence who
conceal evidence that would have led to a different opinion, or who
falsify evidence 
Misinterpreting (drawing inappropriate conclusions from) the
evidence gathered. 

DR INNOCENT SENYO KWASI ACQUAH

 Types of Audit Risk
Inherent risk 
That misstatement will occur due to environmental influence and the nature or type
of company (i.e. at the entity level) and the nature of individual transaction or
balance. Inherent risk depends on the type of business. The following have a high
inherent risk: 
Integrity of directors and management: Auditors need to be sensitive to the
integrity of management and the possibility they may see to manipulate the
accounting records and financial statements. 
Companies with a dominant chief executive: These can include a need to produced
financial statement in a shorter period than normal or pressure to show improved
results such as in anticipation of public listing. 

DR INNOCENT SENYO KWASI ACQUAH

Small and new companies: inexperience management may result
in accounting errors such as failure to make necessary adjustments and
accounting estimates. 
Nature of business: From experience, auditors are aware that certain
type of business are prone to higher incidence of financial reporting
irregularities. 

DR INNOCENT SENYO KWASI ACQUAH

Control risk 
Is the risk that a misstatement that could occur in an account balance
or class of transactions and that could either be material individually or
when aggregated with misstatement in other balance or class, would not
be prevented or detected and corrected on timely basis, by the
accounting and internal control systems 
Detection risk 
Is the risk that auditor’s substantive procedures do not detect a
misstatement that exist in an account balance or class of transactions that
could be material either individually or when aggregated with
misstatements in other balance. 
DR INNOCENT SENYO KWASI ACQUAH
Advantages of the audit risk approach

The auditors are able to provide justification for the work carried in
case there is lawsuit against the auditor for negligence. 

This approach helps the auditors to identify high-risk areas where

more work should be performed and low risk areas, where little or
no audit work will be carried out. 

More efficiency way of conducts an audit. It helps to eliminate

under or over auditing. 

DR INNOCENT SENYO KWASI ACQUAH

Disadvantages of the audit risk approach
It is very difficult to put a quantitative value on inherent risk. Hence,
the model may give an impression of accuracy, which is unrealistic. 
For the model to be useful the population involved need to be
sufficiently large to allow valid statistical conclusion to be drawn. This rules
out use of the model in many smaller audits 
Allocating the risk between accounting systems 
Control risk may not include all factors, which determine the figure in
the financial statements. 
A system using standard deviation of error would be closer to reality. 

DR INNOCENT SENYO KWASI ACQUAH

 Staffing Audit Work
The first human capital model is the experienced hire career model. An auditor that
utilizes this model focuses on hiring or “importing” experienced personnel from
within or outside the organization. These functions want to ensure that they have
auditors with specialized business knowledge and skills. Internal auditing is seen as a
permanent career destination.
The migration model also focuses on ensuring that the audit committee is staffed
with individuals who possess skills that are proven to make the audit a successful
part of the organization.
On the other hand, the strategy implicit in the consulting model’s strategy is to
recruit auditors into the organization only to later move these individuals into other
organizational functions. Under this model, the auditors consist of a group of
consultant auditors and another group of core auditor. successful part of the
organization.

DR INNOCENT SENYO KWASI ACQUAH

Finally, organizations that employ the change agent model view the auditors as
an integral part of the organization’s human resource strategy. “Companies
using this model selectively deploy talent through internal audit to create a
pipeline of corporate change agents who flow continuously into business units.
Here, the migration of talent to line businesses occurs as part of a formal
corporate strategy to achieve this objective and is a primary performance metric
for internal audit” (Anderson, 2001).
The auditors’ choice of a human capital strategy, consisting at least partially of a
combination of the above component models, will drive the staffing decisions it
makes. For instance, an organization that utilizes the consulting model will likely
attract individuals with different characteristics than will an organization that
employs the migration model.

DR INNOCENT SENYO KWASI ACQUAH

 Controlling the audit work
Control is the regulation of organizational activities so that some targeted element of
performance remains within acceptable limits” (Griffen, 2002).
Although the auditor is part of the organization’s control framework, it must also have its
own control framework in place to monitor its compliance with its role and with other
important goals and objectives.
The Standards indicate that, “The organization should develop and maintain a quality
assurance and improvement program that covers all aspects of the internal audit activity
and continuously monitors its effectiveness.” (Standard 1300).
The Standards go on to say that the quality assurance program must monitor the
organization in two primary ways.
First, the program should help the auditors add value and improve the organization’s
operations.
Second, the quality program should act to help the auditors comply with the Standards.

DR INNOCENT SENYO KWASI ACQUAH

One of the key ways that the Auditor can add value and improve the organization
and its governance is to successfully fulfill the auditors’ role, defined in conjunction
with management and the board of directors.
The auditor should develop methods to track its progress in fulfilling the goals and
objectives established in that role.
For instance, performance measures that deal with the quantitative nature of
assurance services may be useful and can include the following: the number of
reports issued, percent of the work plan completed, percent over/ under budget,
etc.
In addition to these numerical measures, organizations sometimes send post-audit
surveys to staff and managers of the business units. Some functions even conduct
post-audit interviews with clients to help ensure that the auditors are providing
valuable services that meet organizational objectives (Roth, 2000).

DR INNOCENT SENYO KWASI ACQUAH

THANK YOU

DR INNOCENT SENYO KWASI ACQUAH