Tag: Audit Plan

Objectives Of The Audit Plan

In this tutorial, we will learn about the objectives of the audit plan is a vital area of the audit primarily conducted at the beginning of the audit process to ensure that appropriate attention.

It is devoted to essential areas, potential problems promptly identified, work is completed expeditiously, and work appropriately coordinated.

Terms of engagement and any statutory responsibilities: 

  • While framing an audit plan auditor should ascertain his terms of appointment and duties cast by various legislation on him. The auditor should prepare his audit plan based on what he is required to do so.

Nature and timing of report or other communications: 

The auditor should determine the form and the timing of the announcement. It will help the auditor to determine the scope and schedule of the audit.

Establishing and coordinating staffing requirements:

The auditor should determine the staff’s exact needs along with the broad estimate of the time required by each staff member so that the audit work will complete on time.

Work of internal auditors:

The statutory auditor must review the work done by the internal auditors to determine the extent of their reliance. It will help the auditor to determine the scope of the work under the audit plan.

Nature and extent of audit evidence: 

The nature and extent of audit evidence will vary in different auditing situations. For example, in one position, the auditor may rely more on physical examination and confirmation from third parties. In contrast, in other cases, he may rely more on the analysis of documentary evidence.

Degree of reliance expected to be placed on the accounting system and internal control: 

While laying down an audit plan, the auditor shall assess the effectiveness of accounting systems and internal control. The auditor must decide whether he will do test checking or more extensive checking of transactions and balances based on assessments.

Test of materiality levels for audit purposes: 

At the planning stage, the auditor sets the materiality levels. For example, the auditor may decide that in case of an audit of sales, he will examine all sales transactions Rs5000.

Identification of significant audit areas:

The auditor needs to identify the areas which involve higher audit risk so that the audit can plan in such a way that the overall audit risk will be less. More risky areas should check in detail and vice versa.

Requirements:

Any change in accounting and auditing standards may affect the audit’s scope or how conducted. Therefore these should be carefully considered while drawing up an audit plan.

Accounting policies followed by the enterprise and change in those policies: 

Accounting policies developed by the enterprise affect the audit plan. While preparing an audit plan, due consideration may give to the areas where there is any change in accounting policies.

 

 Tools Of Auditing

In this tutorial, we will learn about tools of auditing like audit plan, program, evidence, and working papers, which used to support the audit work done.

Auditors use various tools such as audit plans, audit programs, etc. for carrying out an audit. An audit plan lays down the strategies followed for carrying out an inspection. After preparing an audit plan auditor will make an audit program that contains the instructions to be followed by the audit staff. 

It helps auditors in proper supervision of the audit. While doing an inspection, the auditor has to collect evidence in support of his opinion. The audit evidence provides ground for providing support for a fact or a point in question. Audit working papers used to support the audit work done to assure that the relevant auditing standards performed the audit.

‘It is an independent audit of the work and all the contracting issues to determine whether existing procedures complied with and whether there should be any changes in those procedures.’  ‘JOHN MULLEN’

An audit plan lays out the strategies followed in conducting an audit. It includes the nature timing and extent of audit procedures to be performed by the engagement team members. The auditor shall develop an audit plan while considering the following:

  • In the nature timing and extent of planned risk assessment procedures.
  • In the nature timing and extent of audit procedures at the assertion level.
  • Other planned audit procedures are required carried out so that the engagement complies with standards on auditing (SAS).

The collection of accurate and comprehensive data is one of the critical factors for an effective audit. Data for inspection can be collected through surveys, questionnaires, interviews, focus groups, and direct observations. There are differences in the way these methods can be applied depending on the type of audit and the nature and sources of data.

Tools of auditing are as given below:

Surveys:

It helps in collecting information on five variables.

Background data (i.e., Age, Education, Income, etc.)

Behavioral data (i.e., Buying habits, etc.)

Data on attitudes and beliefs.

Data on opinions.

Data knowledge of company programs.

Types of surveys:

Written Survey:

It has the lowest response rate. The data is unreliable.

Telephone survey:

It is a fast means of collecting data.

Limitation of surveys:

  • A survey imposes on the respondents, the structure and standards of relevant of the researcher.
  • Surveys assume that all people use the same language and interpret survey questions int the same way.
  • It usually reveals only superficial information that is complete.
  • The survey distorts the political reality of the organization, implying that all opinions are carrying equal weight.
  • The use of random samples in the survey approach assumes that the required information is distributed evenly through the organization and could lead the researcher to develop the distorted picture of the company.
  • The survey process itself affects the response depending on when and by whom the questions asked.
  • It assumes that peoples have opinions, but in reality, people may not disclose that they do not know. Or they do not have an idea.
  • It assumes a relationship between attitudes or opinions and behavior.

Questionnaires:

  • There are certain advantages to this method.
  • They serve as a guide for the interviewers.
  • They easily distributed to the respondents.
  • They serve as a preparation tool for the audit team.

Focus Groups:

This method serves another approach to data gathering. It allows the collection of more information and the involvement of more people than is possible in one-on-one interviews. A focus group may have five to ten personnel. The session may last for a couple of hours.

Successful and productive focus groups have skilled facilitators who are responsible for guiding the group and managing group dynamics, well-selected participants from a homogeneous group, and a useful moderator guide who targets the information required from the session. The facilitator manages the information flow between group members.

Interviews:

It is another method of collecting data on sensitive subjects. Here the skilled interviewers can establish a relationship of trust with the respondent. The audit team often uses meetings. Interviews are more suitable as most respondents enjoy talking rather than writing.

But interviews are among the most expensive research tools. Sometimes it is challenging to aggregate data gathered from interviews.

Direct Observation:

This method finds many applications to incorporate the environment, especially in the audit process. Various techniques are available under direct observation as follows.

  1. Participant observation.
  2. Field observation.
  3. Trace data.
  4. Archival data.