Audit Planning

The auditor should plan the audit so that the engagement will performed in an effective manner.

Definitions

Audit strategy:

The formulation of the general strategy for the audit, which sets the scope, timing and direction of the audit and guides the development of the audit plan.

Audit plan

An audit plan is more detailed than the strategy and sets out the nature, timing and extent of audit procedures (including risk assessment procedures) to be performed by engagement tem members in order to obtain sufficient appropriate audit evidence.

Audit plan shows how the overall audit strategy will be implemented.

Audits are planned to:

• · Ensure appropriate attention is devoted to important areas of audit
• · Identify potential problems and resolve them on a timely basis
• · Ensure that the audit is properly organized and managed
• · Assign work to engagement team members properly
• · Facilitate direction and supervision of engagement team members
• · Facilitate review of work

A structured approach to planning will include

Step 1

Ensuring that the ethical requirements continue to be met

Step 2

Ensuring the terms of engagement are understood

Step 3

Establishing the overall audit strategy

Step 4

Developing an audit plan including risk assessment procedures, audit tests and any other procedures necessary to comply with

Benefits & limitations of assurance

Benefits of assurance

• Key benefit – independent professional verification
• Increase the confidence and reliability of other users
• Help to prevent error and frauds
• Help to making investment decision

“Assurance can never be absolute”

Limitations of assurance:

• The fact that testing is used
• Inherent limitations of accounting and internal control system
• The most of the audit evidence is persuasive rather than conclusive
• The fact that assurance provider should not every item in the subject matter
• The fact that client’s staff member may collude in fraud that can be deliberately hidden from the auditor or misrepresent matters to them for same purpose
• The fact that professional judgments have to be made
• Use of estimates

The expectation gap – meaning that there is a gap between what the assurance provider understands he is doing and what the user of the information believe he is doing.

Audit

What is Audit

The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

“True and fair view which is expression of reasonable assurance”

True – Information is factual and conforms with reality, not false. In addition the information conforms with required standards and law. The accounts have been correctly extracted from books and records.

Fair- Information is free from discrimination and bias in compliance with expected standards and rules. The accounts should reflect the commercial substance if the company’s underlying transaction.

Assurance

What is assurance engagement?

An assurance engagement is one where a practitioner expresses a conclusion, designed to enhance the degree of confidence for intended user, other than responsible party, about the outcome of evaluation or measurement of subject matter against suitable criteria.

Key elements

• · Three party involvements
• · Subject matter
• · Suitable criteria
• · Sufficient appropriate evidence
• · Written report

Level of assurance engagement

Two types:

· Reasonable assurance engagement

· Limited assurance engagement

Examples of assurance engagement

v Key example is statutory audit

v Other audits-

§ Local authority audit

§ Insurance co audit

§ Bank audit

§ Pension scheme audit

§ Charity audit

§ Solicitors audit

§ NGO audit

§ Environmental audit

§ Branch Audit

v Other assurance engagement-

§Value for money audit

§Circulation audit

§Cost/benefit audit

§Due diligence

§Review of specialist business activity

§Internal audit

§Report on website securities

§Inventories or receivable

§Internal control

§Fraud investigation