MODULE 2 AUDIT PLANNING

,PROCEDURES AND DOCUMENTATION

Audit Planning is a key principle in auditing that helps auditors work effectively
and efficiently. Here’s a breakdown of what it involves:
1. Understanding the Client: Auditors need to learn about the client's
business, including their accounting systems, policies, and internal
controls. This helps auditors know how the company operates.
2. Reliance on Internal Controls: Auditors determine how much they can
trust the client's internal controls. If the controls are strong, they might
not need to check everything in detail.
3. Planning Audit Procedures: Auditors decide what specific steps they will
take during the audit, including when to perform these steps and how
much work is needed.
4. Coordinating Work: Auditors need to plan how to organize their work
and ensure everyone involved is on the same page.
Continuous Planning (AAS 8)
• Overall Plan: Auditors create a big-picture plan for how the audit will be
carried out and what areas will be covered.
• Audit Program: They also make a detailed program outlining specific
procedures, including what to do, when to do it, and how thorough they
need to be.
Adjustments
Auditing is flexible. If conditions change or unexpected findings come up during
the audit, auditors may need to adjust their plans. They should document the
reasons for any significant changes they make.
In summary, audit planning is about being organized, understanding the client,
and being ready to adapt as needed throughout the audit process.
OBJECTIVES OF PLANNING
Objectives of Planning in Auditing
Good audit planning is essential and helps achieve several important goals:
1. Focus on Important Areas: It ensures that auditors pay special attention
to the critical parts of the audit that matter most.
2. Identify Problems Early: Planning helps spot potential issues quickly, so
they can be addressed without delay.
3. Complete Work Efficiently: A solid plan helps the audit get done in a
timely manner, avoiding unnecessary delays.
4. Utilize Team Members Effectively: It allows auditors to make the best
use of their assistants and other team members.
5. Coordinate with Others: If there are other auditors or experts involved,
planning helps to make sure everyone is working together smoothly.

FACTORS TO BE CONSIDERED
Factors Considered by the Auditor in Planning
When planning an audit, the auditor looks at several important factors:
1. Complexity of the Audit: The auditor assesses how much work is needed
and what their reporting responsibilities are. This helps them understand
how complicated the audit will be.
2. Business Environment: The auditor examines the context in which the
client operates. This includes:
o How much technology is used (like computers)
o The effectiveness of internal controls
o The general attitude of the staff
3. Previous Experience with the Client: By reviewing last year’s audit
documents, the auditor can identify issues that needed special attention
before. This helps them decide if those issues will affect this year’s audit.
 4. Knowledge of the Client's Business: Understanding the client’s business
is crucial. This helps the auditor to:
o Identify specific areas that need special focus
o Assess whether the accounting estimates and management claims
are reasonable
o Judge if the accounting policies and disclosures are appropriate
5. Discussion with the Client: The auditor may talk with the client about
the overall audit plan and specific procedures. This can help make the
audit more efficient and ensure better coordination with the client’s
staff. However, the final audit plan and program are still the auditor's
responsibility.
In short, these factors help the auditor create a well-informed plan for the
audit, ensuring it is thorough and efficient.
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SOURCES OF OBTAINING
INFORMATION
Sources of Information for the Auditor (AAS 8)
To effectively plan an audit, the auditor needs to gather knowledge about the
client’s business. Here are the main sources of information they can use:
1. Annual Reports: These reports provide a summary of the company's
performance and important financial details for shareholders.
2. Meeting Minutes: Notes from meetings of shareholders, the Board of
Directors, and important committees can reveal decisions and
discussions that impact the business.
3. Internal Financial Reports: Current and past financial reports, including
budgets, help the auditor understand the company’s financial health.
4. Previous Audit Papers: Reviewing last year's audit documents can
highlight issues that might still be relevant.
 5. Personnel: Speaking with employees responsible for non-audit services
can provide insights into matters affecting the audit.
6. Client Discussions: Engaging in conversations with the client can help
clarify important details.
7. Policies and Procedures Manual: This document outlines the company’s
internal policies and procedures.
8. Publications: Relevant industry publications, trade journals, magazines,
newspapers, and textbooks can provide valuable context about the
business and its environment.
9. Economic Considerations: Understanding the overall state of the
economy and how it affects the client’s business is important.
10.Site Visits: Visiting the client's facilities allows the auditor to see
operations firsthand.

Discussion with client:

Discussion Topics During Audit Planning (AAS 8)
When planning an audit, the auditor may discuss several important topics with
the client:
1. Changes in Management and Structure: The auditor will ask about any
recent changes in the company's leadership or organizational setup. This
helps them understand how these changes might impact the business.
2. Government Rules and Regulations: The auditor will discuss any new
laws or regulations that the client needs to follow. This is important
because such rules can affect how the business operates.
3. Business Developments: The auditor will inquire about recent changes
in the market or industry that might impact the client's business. This
could include new products, competitors, or trends.
4. Financial Difficulties: The auditor will want to know if the client is facing
any current or potential financial issues. Understanding these difficulties
can help the auditor assess risks.
 5. Interested Parties: The auditor will discuss any parties with a vested
interest in the company, such as investors or related companies, and any
transactions with them. This is important for transparency and
understanding potential conflicts of interest.
In summary, these discussions help the auditor gather crucial information to
effectively plan the audit and address any potential issues.

DEVELOPMENT OF AN OVERALL PLAN

Developing an Audit Plan
When an auditor creates a plan for the audit, they should consider several
important factors:
1. Engagement Terms: The auditor should understand the agreement with
the client and any legal responsibilities.
2. Reporting: They need to plan when and how they will communicate
their findings to the client.
3. Legal Requirements: The auditor must be aware of any laws or
regulations that apply to the audit.
4. Accounting Policies: They should look at the client's accounting policies
and any changes to them.
5. New Standards: The auditor needs to consider how new accounting or
auditing rules may affect the audit.
6. Key Audit Areas: Identifying important areas that need special attention
during the audit is essential.
7. Materiality Levels: The auditor should set levels to determine what is
significant enough to affect the audit conclusions.
8. Special Conditions: Any situations that may indicate a risk of errors or
fraud should be highlighted, especially if they involve key individuals in
the company.
Vouching in Auditing
Vouching is the process of verifying transactions recorded in the company's
books. The auditor checks each transaction against supporting documents to
ensure they are authentic. Here’s what the auditor looks for:
1. Date: The date on the voucher should be within the accounting period
being audited.
2. Client's Name: The voucher must be made out in the client's name.
3. Authorization: The voucher needs to be properly authorized, meaning
someone with the right authority has approved it.
4. Completeness: The voucher should include all relevant documents
related to the transaction.
5. Correct Account: The amount should be recorded in the right account so
that it clearly shows the nature of the transaction in the financial
statements.
After checking a voucher, the auditor should mark it (with a stamp or initials) so
it can’t be used again for another entry.
In summary, these steps help ensure that the audit is thorough, accurate, and
trustworthy.

MEANING OF AUDIT PROGRAMME

Importance of an Audit Program
For each audit, especially larger ones, it's important to create an audit
program. This program is basically a detailed list of steps the auditor will follow
to examine and verify the company’s financial information.
What is an Audit Program?
• Step-by-Step Plan: It outlines the specific steps the auditor will take,
showing how each step relates to the others.
• Focused on Assertions: The program is designed around the claims
made in the financial statements and the client's accounting records.
 • Tailored to Each Business: Since businesses differ in size and nature, one
audit program won’t fit all. The program should be specific to the
particular audit to avoid wasting time on irrelevant tasks.
Key Points for Creating an Audit Program
1. Stay Within Scope: Make sure the audit program is limited to what’s
relevant for the specific assignment.
2. Identify Evidence: Determine what evidence is available and choose the
best evidence to support the audit conclusions.
3. Use Relevant Procedures: Only apply the steps that are useful for
verifying the financial statements in the given situation.
4. Consider Possible Errors: Think about what kinds of mistakes might
occur and plan how to check for them.
5. Coordinate Related Steps: Make sure that related procedures are
aligned to provide a comprehensive review.
Evidence as a Foundation
The audit program is designed to gather enough evidence so the auditor can
form a reliable opinion on the financial statements. The choice of what
constitutes the best evidence depends on the auditor's expertise and the
nature of the transactions being audited.
Summary
In short, an audit program helps the auditor methodically verify financial
statements while ensuring that all necessary steps are taken to gather reliable
evidence. This way, the auditor can provide an informed opinion on the
company’s financial health.

FACTORS, ADVANTAGES AND

DISADVANTAGES OF AUDIT
PROGRAMME
Factors to Consider When Creating an Audit Program
When making an audit program, the auditor should remember these key
points:
1. Stay Within Scope: Make sure the program focuses only on what’s
relevant for the specific audit.
2. Identify Available Evidence: Find out what evidence is available and
choose the best type to support the audit conclusions.
3. Use Relevant Procedures: Only include steps that will actually help verify
the financial statements in the given situation.
4. Consider Possible Errors: Think about potential mistakes that could
happen and plan to check for them.
5. Coordinate Related Steps: Ensure that procedures for similar items are
aligned to provide a complete review.
Advantages of an Audit Program
1. Clear Instructions: It gives assistants a clear set of instructions on what
work needs to be done.
2. Overall Perspective: It helps provide a full view of the work needed,
especially for larger audits.
3. Easier Staff Selection: It’s easier to choose the right assistants for tasks
when the work is well-defined.
4. Reduces Oversights: Having a written plan helps prevent missing
important records, unlike relying on memory.
5. Accountability: Assistants can sign off on the program, taking
responsibility for their work and making it easy to trace back any issues.
6. Progress Tracking: The principal can monitor how various audits are
progressing by reviewing the programs completed by assistants.
7. Future Guidance: It can be used as a guide for audits in future years.
8. Evidence of Care: If there’s ever a complaint about negligence, a solid
audit program can show that the auditor acted professionally and
responsibly.
Disadvantages of an Audit Program
 1. Mechanical Work: Assistants might just go through the motions without
understanding the purpose of each step.
2. Rigidity: The program can become outdated if the business changes,
leading to irrelevant procedures being followed.
3. Blame for Poor Work: Less competent assistants might hide behind the
program, saying they were just following instructions if they make
mistakes.
4. Stifles Initiative: A strict program might discourage proactive thinking
and creativity among capable assistants.
Conclusion
To overcome these disadvantages, the auditor should supervise work
thoughtfully, encourage assistants to be observant, and allow room for
adjustments as needed. This approach fosters a better audit environment and
helps ensure thorough and effective auditing.

AUDIT WORKING PAPERS

Audit Working Papers
Audit working papers are important documents that connect the auditor’s
report to the client’s financial records. They help document everything the
auditor does during the audit process.
What are Audit Working Papers?
According to auditing standards (AAS 1 and AAS 3), working papers are the
notes and documents created or collected by the auditor during the audit.
These papers are kept to show what work was done and how conclusions were
reached.
Purpose of Working Papers
The main purposes of audit working papers are:
1. Control Current Audit Work: They help the auditor keep track of what
tasks have been completed during the audit.
2. Evidence of Audit Work: They provide proof of the work performed,
which can be referred to later.
3. Support Schedules: They include additional details or calculations that
support items in the financial statements.
4. Business Information: They contain important information about the
business being audited, including its recent history.
Types of Information in Working Papers
Working papers can include various types of information, such as:
1. Constitutional Documents: These are foundational documents like the
company's articles of association or partnership agreements.
2. Minutes of Meetings: Notes from meetings of directors or shareholders
that outline decisions and discussions.
3. Financial Statements: The balance sheet and profit and loss account
provide key financial information about the business.
4. Engagement Letter: This is the agreement that outlines the auditor's
responsibilities and the scope of the audit.
Summary
In simple terms, audit working papers are crucial for documenting the auditor's
work, ensuring everything is well-organized and easy to reference. They help
auditors control their work, provide evidence of what they’ve done, and
include essential information about the business.
FACTOR DETERMINING FORM AND
CONTENTS OF AUDIT WORKING
PAPERS:
Factors Determining the Form and Content of Audit Working Papers
Audit working papers need to capture key elements of the audit process,
including the audit plan, the procedures performed, and the conclusions
drawn. The way these papers are organized and what they include depends on
several factors:
1. Nature of the Engagement: Different types of audits (like a financial
audit versus a compliance audit) will require different approaches and
documentation.
2. Form of the Auditor’s Report: The type of report the auditor will issue
can influence how the working papers are structured.
3. Complexity of the Client’s Business: A more complex business might
require more detailed working papers to cover all aspects of its
operations.
4. Quality of Client Records: If the client has good internal controls and
organized records, the working papers can be simpler. If the records are
poor, more documentation will be needed.
5. Need for Supervision: If the audit involves assistants, the auditor might
need to provide more direction and review their work closely.
Organization of Working Papers
Working papers should be tailored to fit the specific audit and the needs of the
auditor. Standardizing certain elements (like checklists and templates) can help
make the process more efficient and ensure quality control. This
standardization allows for easier delegation of tasks and helps maintain the
quality of the work.
Completeness of Working Papers
While working papers should be thorough, they don't need to document every
single detail or observation. The level of detail is a matter of professional
judgment. The goal is to provide enough information for anyone reviewing the
papers to understand the audit without overloading them with unnecessary
details.
Summary
In summary, audit working papers should be well-organized and tailored to
each specific audit, influenced by the engagement type, the client’s complexity,
and the quality of their records. They should strike a balance between being
detailed enough to provide a clear understanding while avoiding unnecessary
clutter.