Why is there a need for audit planning what primary benefit does planning provide in an audit

Audit Planning

Introduction

An audit is a professional service to a client. The review of accounting, financial and other operations form a basis of such service. Before commencing audit, an auditor must prepare himself well. Preparation for an audit relates to audit planning, preliminary preparations by the auditor, audit programme, audit note book, audit working papers, audit evidence, commencement of a new audit, test checking, and routine checking.

Meaning of Audit Planning

Planning is required to complete the audit effectively within the specified time. Audit planning is a process of deciding in advance what is to be done, who is to do it, how it is to be done and when it is to be done by the auditor in order to have efficient and effective completion of work.

Audit planning can be done only when, the auditor is having knowledge of the business of the client. It helps in accomplishment of objectives of audit and enables the auditor to cover different aspects of audit work in a systematic manner within a preset time frame. It enhances the quality of audit work. Audit plans should cover knowledge about client’s accounting systems and policies, internal control procedures and coordinating the work to be performed. Plans should be flexible so that they can be developed or revised as and when required by the auditor.

Benefits (or) Advantages of Audit Planning

An efficient and effective audit plan provides the following benefits:

·           Accomplishment of Objectives: Audit plan ensures that it provides right means to accomplish audit objectives. Further it also ensures that appropriate attention is devoted to important areas of audit.

·           Identification of Problems: A well drawn and established audit plan helps in identifying potential problems.

·           Timely Completion of Work: It ensures that work is completed properly within the specified time and no important area is left out. It also ensures that all important areas of management receive attention.

·           Facilitates Coordination: It facilitates coordination of the audit work done by auditors and other experts.

·           Better Audit Work: It helps in improving the quality of audit work and provides promptness and perfection in audit performance.

Factors Affecting Audit Planning

The following factors should receive due consideration while planning:

·     Size of the company and nature of its operations.

·     Accounting system, internal control and adherence to standard.

·     Environment in which the company operates.

·     Previous experience with the client; and

·           Knowledge of client’s business.

Page 2

Audit Programme

MEANING

An audit programme is a detailed, written statement designed by the auditor indicating the work to be performed by the audit assistants, specifying the time limit for completion of work, instructions and guidance to the audit staff. In short, it is a tool for planning, directing and controlling the audit work.

An audit programme is a detailed plan of the auditing work to be performed. It specifies the procedures to be followed in the conduct of audit more efficiently. The auditor outlines the whole procedure of audit from beginning till the finalization of audit report. Audit programme is generally contained in the audit notebook.

Definition

Prof. Meigs defines an audit programme as, “an audit programme is a detailed plan of the auditing work to be performed, specifying the procedures to be followed in verification of each item and the financial statements and giving the estimated time required.”

Features (or) Characteristics of an Audit Programme

The features of an audit programme may be of the following:

1.        It is a set of procedures to be adopted to conduct the audit more efficiently.

2.        It is a written scheme designed by the auditor.

3.        It is a blue print of the audit work.

4.        It facilitates delegation of work, based on the capabilities of audit staff.

5.        It acts as evidence in future for the audit work being performed.

6.        It specifies the work to be done by the audit staff, the manner and time limit for completion of the work.

Objectives of Audit Programme

The following are the objectives of audit programme:

1.        To provide clear instructions to the audit assistants specifying the nature of work to be performed and fixing the time span for completion of each work.

2.        To facilitate coordination among various parts of audit work.

3.        To ensure uniformity in the performance of audit work and to avoid duplication and repetition of work.

4.        To attain a fair allocation of work among audit team.

5.        To fix responsibility and accountability of each audit assistant.

6.  To serve as a guide for planning the audit work in future.

7.        To serve as evidence in future showing the date of completion of audit work, methods or procedures undertaken, persons involved in completion of audit work etc.

Contents of an Audit Programme

The following are the details of an audit programme:

1.      Name of the client.

2.      Nature of operations and business of client.

3.      Review of system of internal check.

4.      Date of commencement of audit work.

5.      Duration of audit work.

6.      Accounting system followed in client organization.

7.      Review the report of the previous auditor.

8.      Review the remarks, instructions or objections raised in the previous audit report.

9.        Examine the various ledger accounts and subsidiary books.

10.   Examine the statutory books and registers, profit and loss account, and balance sheet.

Advantages of an Audit Programme

An audit programme can give the following advantages:

1.        Helps in Estimation and Division of Work: Audit Programme helps in estimating the quantum of audit work in advance and also helps in dividing the work among the audit assistants based on their capabilities.

2.        Helps in Fixation of Responsibility: It enables to fix responsibility on the audit assistants by clearly defining the scope of work.

3.        Helps in Future Planning: Audit programme serves as a basis for planning the audit work for subsequent year.

4.        Serves as a Guide:  It  serves  as  a valuable guide for the audit staff in execution of the audit work for succeeding years.

5.        Valuable Evidence: It serves as an evidence for the work done as initials of those who have done the particular work are appended to it. The auditor can produce the audit programme as a proof when a charge of negligence being brought upon him.

6.        Uniformity: It provides for uniformity in audit work as the same work will be done every year.

7.        Continuity: When an audit staff goes on leave others can continue the work by referring to the audit programme, hence, audit programme provides for continuity of work.

8.        Coordination: If facilitates coordination and helps in supervising the work of the audit staff.

Disadvantages of an Audit Programme

The disadvantages that may be experienced by conducting audit as per predetermined audit programme are -

1.  Mechancial: When audit work is conducted mechanically every year based on the audit programme, it causes monotony and boredom to the auditor and audit staffs.

2.  No Quality in Work: The audit staff will be more interested to complete the work in time rather than to maintain any standard in the work.

3.  Loss of Initiative: Audit staff cannot take their own decisions and they are compelled to comply with the audit programme. Hence, an efficient audit clerk loses his initiative and interest as he cannot make any suggestions.

4.  Rigidity: A rigid and inflexible audit programme cannot be laid for all types of business. During the course of audit, new areas to be verified may come to the notice of the audit staff. Unless the audit programme is revised, such areas may escape from auditing.

5.  Shelter for Inefficient Staff: Inefficient audit staffs conceal their mistakes or weakness on the basis of audit programme. Hence, it provides shelter for inefficient audit staff.

6.        Unsuitable: Pre-determined audit programme is not suitable for small business organizations.