Auditing Planning

Audit plan describe how the audit approach is to be implemented. Auditors develop an audit program
for each material account balance or account balance assertion. An audit program describes what and
how much evidence is required to be gathered and evaluated, and how, when and by whom it is to be
gathered and evaluated. In other words, an audit program details the nature, timing and extent of the
planned audit procedures relating to the various account balance assertions.

Auditors prepare audit programs in respect of evidence gathered and evaluated in each of the control
testing, substantive testing and opinion formulation stages. It is prepared, or revised, as part of the
operational planning activities of those three audit stages and documented as part of the audit working
papers.

The nature of the planned procedure describes what evidence is required and how it is to be gathered,
the timing describes when the evidence is to be gathered, the extent describes how much evidence is
needed and responsibility describes by whom the evidence is to be gathered and evaluated.

Audit Strategy

The auditor should plan his work to enable him to conduct an effective audit in an efficient and timely
manner. Plans should be based on knowledge of the clients business.

Strategy should be made to cover, among other things :

a) Acquiring knowledge of the client’s accounting systems, policies and internal control
procedures;
b) Establishing the expected degeree of reliance to be placed on internal control;
c) Determining and programming the nature, timing, and extent of the audit procedures to be
performed; and
d) Coordinating the work to be performed.

Plans should be further developed and revised as necessary during the course of the audit

Objectives of planning

Adequate auditing planning helps to :

• Ensure that appropriate attention is devoted to important areas of the audit;

• Ensure that potential problems are promptly identified;
• Ensure that the work is complete expeditiously;
• Utilise the assistants properly; and
• Co-ordinate the work done by other auditors and experts
In planning his audit, the auditor will consider factors such as complexity of the audit, the enviornment
in which the entity operates, his previous experience with the client and knowledge of the client’s
business.

Knowledge of the client’s business

The auditors need to obtain a level of knowledge of the clients business that will enable him to identify
the events, transactions and practices that, in his judgment, may have significant effect on the financial
information. Among other things, the auditor can obtain such knowledge from :

• The clients annual reports to shareholders

• Minutes of meetings of shareholders, board of directors and important committees
• Internal financial management reports for current and previous periods, including budgets, if
any
• The previous year’s audit working papers, and other relevant files
• Firm personnel responsible for non-audint services to the client who may be able to provide
information on matters that may affect the audit
• Discussion with client
• The clients policy and procedures manual
• Consideration of the state of the economy and its effect on the clients business

Discussions with the client might include such subjects as:

• Changes in management, organisational structure and activities of the client

• Current government legislation, rules, regulations and directives affecting the client
• Current business developments affection the client
• Current or impending financial difficulties or accounting problems
• Existence of parites in whom directors or persons who are substantial owners of the entity are
interested and wiht whom transactions are likely
• New or closed premises and plant facilities
• Recent or impending changes in technology, types of products or services and production or
distribution methods
• Significant matters arising from previous years financial statements, audit report and
management letters, if any
• Changes in the accounting practices and procedures and in the system of internal control
• Scope and timing of the examination
• Assistance of client personnel in data preparation
• Relevace of any work to e carried out by the clients internal auditors

In addition to the importance of knowledge of the client’s business in establishing the overall audit plan,
such knowledge helps the auditor to identify areas of special audit consideration, to evaluate the
reasonbaleness both of accounting estimates and management representations, and to make
judgements regarding the appropriateness of accounting policies and disclosures
Developement of an overall plan

The auditor should consider the following matters in developing his overall plan for the expected scope
and conduct of the audit :

• The terms of his engagement and any statutory responsibilities

• The nature and timing of reports or other communication
• The applicable legal or statutory requirements
• The accounting policies adopted by the client and changes in those policies
• The effect of new accounting or auditing pronouncements on the audit
• The identification of significant audit areas
• The setting of materiality levels for audit purposes
• The degree of reliance he expects to be able to place on accounting sysem and internal control
• The nature and extent of audit evidence to be obtaind
• The work of internal auditors and the extent of their involvement, if any, in the audit
• The involvement of experts
• Establishing and coordinating staffing requirements

The auditor should document his overall plan. A time budget, in which hours are budgeted for the
various audit areas or procedures, can be an effective planning tool.

In preparing the audit programme, the auditor, having an understanding of the accounting system and
related internal controls, may wish to rely on certain internal controls in determining the nature, timing
and extent of required auditing procedures.

Audit working papers

Audit working papers are the record of the planning and execution of the audit engagement. Auditors
retain a set of working papers for each audit engagement for each year. The audit working papers for
the current year are referred to as the current working papers. Working papers that are relevant to
more than one audit engagement are often kept separately in a file referred to as permanent working
papers. The audit working papers (current and permanent) for a client audit engagement describes the
evidence upon which the auditor bases his/her opinion on the financial report. The working papers need
to be sufficiently detailed to enable another appropriately experienced and competent auditor that is
not familiar with the client to obtain an overall understanding of the engagement.

Current working papers include:

• the tactical audit plan including the audit approach for each material account balance assertion,
and the basis for their determination,
• the related audit programs,
• the audit evidence gathered by the auditor necessary to form the opinion on the financial
statements,
 • conclusions reached about individual account balance assertions,
• notes made of the quality review of the working papers,
• a schedule of audit differences, and
• the details of critical decisions made by the auditor that have an impact on the final audit
opinion.

Permanent working papers may include:

• A description of the major activities, products, and locations of the client entity.
• Organization charts.
• A description of the client's accounting information system, which may be in the form of
narratives, questionnaires, flow charts, matrices, or some combination thereof.
• Copies of the client's manuals relating to the accounting information system and other
procedural manuals.

The standardisation of working papers (e.g. checklists, specimen letters, standard organisation of
working papers) improves the efficiency with which they are prepared and reviewed. It also facilitates
the delegation of work while providing a means to control its quality

Audit evidence
By evidence we mean the material, documentary or otherwise, available to prove or disprove the
assertions made in the statement of accounts through the entries in the books of account.

The auditor picks up evidence from a variety of fields and it is generally of the following broad types :

a) Documentary examination
b) Physical examination
c) Statements and explanation of management, officials and employees
d) Statements and explanations of third parites
e) Airthmatical calculations by the auditor
f) State of internal controls and inernal checks
g) Inter-relationship of the various accounting data
h) Minutes

By “good evidence” we mean a highly satisfactory evidence available without any special effort or cost.
For cash in hand the best evidence is ‘count’ ; in respect of investment pledged with a bank, the
banker’s certificate. For verifying assertions about the book of debts, the clients ledger invoices, debit
notes, credit notes, monthly accounts statement sent to the customers are all evidence : some of these
are corroborative, other being complementary.