Planning an Audit

1.   Aims of Planning

 

Audit like any other human endeavor have to be planned. The objective of the auditor is to plan the audit so that it will be performed in an effective manner.

In order to ensure a high standard of performance, it is important that the auditor should prepare adequately for his work. Planning for an audit, just like every human endeavour, is essential for the smooth performance of the audit work and its successful completion. Planning ahead for an audit work will not only guarantee a valid audit opinion but will also help the auditor to ensure that:


 

·         The audit objective is established and achieved;

·         The audit is properly controlled and adequately directed at all stages;

·         High risk and critical areas of the engagement are not omitted but that adequate attention is focused on these areas; and

·         The work is completed economically and expeditiously, hence, savings on audit resources.

2.   Timing and Role of Planning an Audit

Planning an audit involves establishing the overall audit strategy for the engagement and developing an audit plan. Adequate planning benefits the audit of financial statements in several ways, including the following:

 

a)    Helping the auditor identify and devote appropriate attention to important areas of the audit;

b)    Helping the auditor identify and resolve potential problems on a timely basis;

c)    Helping the auditor properly organize and manage the audit engagement so that it is performed in an effective and efficient manner;

d)    Assisting in the selection of engagement team members with appropriate levels of capabilities and competence to respond to anticipated risks and allocating team member responsibilities;

e)    Facilitating the direction and supervision of engagement team members and the review of their work;

f)     Assisting, when applicable, in coordination of work done by auditors of components and specialists.

The nature and extent of planning activities will vary according to the size and complexity of the entity, the key engagement team members' previous experience with the entity, and changes in circumstances that occur during the audit engagement.

Planning is not a discrete phase of an audit but rather a continual and iterative process that often begins shortly after (or in connection with) the completion of the previous audit and continues until the completion of the current audit engagement. Planning, however, includes consideration of the timing of certain activities and audit procedures that need to be completed prior to the performance of further audit procedures. For example, planning includes the need to consider, prior to the auditor's identification and assessment of the risks of material misstatement, such matters as the following:

·         The analytical procedures to be applied as risk assessment procedures

·         A general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework

·         The determination of materiality

·         The involvement of specialists

·         The performance of other risk assessment procedures

The auditor may decide to discuss elements of planning with the entity's management to facilitate the conduct and management of the audit engagement (for example, to coordinate some of the planned audit procedures with the work of the entity's personnel). Although these discussions often occur, the overall audit strategy and the audit plan remain the auditor's responsibility.

When discussing matters included in the overall audit strategy or audit plan, care is required in order not to compromise the effectiveness of the audit. For example, discussing the nature and timing of detailed audit procedures with management may compromise the effectiveness of the audit by making the audit procedures too predictable.

 

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