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Chapter No.02

The document discusses audit planning and preparation. It notes that audit planning involves designing audit actions to effectively conduct an audit. Planning should cover preparation, integration with other activities, and estimated timelines. Effective planning considers factors like the nature, size and complexity of the business, reporting requirements, knowledge of the client, and industry. Developing an overall audit plan and implementing it through audit programs are also discussed.

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34 views18 pages

Chapter No.02

The document discusses audit planning and preparation. It notes that audit planning involves designing audit actions to effectively conduct an audit. Planning should cover preparation, integration with other activities, and estimated timelines. Effective planning considers factors like the nature, size and complexity of the business, reporting requirements, knowledge of the client, and industry. Developing an overall audit plan and implementing it through audit programs are also discussed.

Uploaded by

Wais Deen Nazari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Auditing

and
control
Lecture No. : - 2nd

Lecturer Name: - Rahmatullah Hamidi


Audit Planning
 Audit planning means that the action to be taken
an auditor in respect of any particular field of
verification and reporting should be so designed
that it may enable an auditor to conduct an audit
more effectively.
 Therefore an audit planning should cover
preparation required for each individual audit, its
integration with other related activities or actions
and estimated time span for completion of task.
 Nature, complexity and size of enterprise.
 Environment in which an enterprise operates.
 Methods of processing transactions.
 Reporting requirements.
 Previous experience with client.
 Knowledge of client’s business.
 Industry in which the enterprise is involved.
 Appropriate attention to important and
sensitive areas of audit.
 Prompt identification of potential problems.
 Expeditious completion of task by
exercising proper control and timing.
 Proper utilisation of audit force available.
 Effective coordination of audit assignement.
 Utilization of computer facilities and
techniques.
 Review of field work by seniors becomes
simplified and speedy.
 Obtaining knowledge about client’s business.
 Developing an overall audit plan paying
specific emphasis on such activities like audit
strategy, timing, staffing and liason with client
and client’s executives.
 Implementing audit plan through process of
audit programmes.
 Updating the audit plan in the light of current
circumstances.
 Post audit plan review in the form of
suggestions from all levels of audit staff which
may help in future audit plan
 Annual accounts to shareholders.
 Minutes of shareholders, directors and
committees’ meetings.
 Internal financial reports
 Previous working papers
 Discussions with client’s management and
staff.
 Clients ’ s policy, accounting and management
manual.
 Government policies and their impact on client
‘ s business.
 Visits to clients premises and plant facilities.
 Terms of engagement and statutory
responsibilities.
 Nature and timing of reports required to be

submitted under the engagement.


 Accounting policies adopted and changes

therein.
 Effect of new accounting and auditing

standards.
 Identification of significant audit areas.
 Setting of materiality levels.
 Circumstances requiring special attention.
 Degree of reliance to be placed on accounting

systems and internal control.


 Possible repeat action.
 Nature and extent of evidence obtained.
 Work of internal auditor and utilization and

reliance thereon.
 Work of other auditors involved in branch

audit subsidiaries audit.


 Involvement of experts.
 An audit programme is a written scheme of
the exact details of the work to be done by
the auditor and his staff in connection with a
particular audit.
 It is generally included in the audit note book

and is invariably in black and white.


 One audit programme is prepared for one

audit and details depend upon system of


internal control.
 While preparing audit program the auditor
should give attention to following points:
◦ Extra scope of the duties of an auditor.
◦ Books of original entry and ledgers in use.
◦ The system of book keeping employed, and its
weaknesses
◦ System of internal check and the extent of its
reliability.
◦ Special provisions contained in legal documents.
 In order to draw up audit programme the
auditor should include the following items:
◦ Name of client
◦ Audit commencement date
◦ Duration of audit
◦ Accounting system of client
◦ System of internal control
◦ Previous audit reports
◦ Examination of:
 Cash book and petty cash book
 Sales and sales returns books
 Purchases and purchases returns day book
 Bill receivable and bills payable books
 Ledger accounts and other books
 Statutory books and registers being maintained by the
company.
 It facilitates to monitor the progress of
assistants.
 Uniformity in the audit work is maintained.
 Division of work amongst the juniors can be

made easily.
 The responsibility for negligence for any

junior can be easily fixed.


 It provide guidance to juniors for carrying out

audit work.
 Planning for future audit can be made.
 Audit staff can be demotivated due to
repetitive nature of work.
 Audit program may not cover everything that

might come up during the course of audit.


 If audit program is not revised may become

rigid.
 Audit program
 Audit review notes
 Audit queries
 Important balances
 Extract from documents
 Accounting statistics
 Appointment:
◦ He should obtain a certified copy of the resolution of
the board of directors or shareholders.
 Documents:
◦ A copy of Memorandum and Articles of Association
should be obtained and carefully studied.
 Prospectus:
◦ Relevant matters affecting accounts should be
examined.
 Minutes book
◦ He should go through the directors and shareholders
minutes books and job down notes of important
decisions.
 Contracts
◦ All material contracts entered into by the company
within or outside should be carefully studied.
 Technical operations
◦ Should acquaint with technical operations of
company as far as possible.
 List of books
◦ Should obtain a list of all books statutory, statistical
and accounting which are in use.
 System of accounting
◦ A note on the system of accounting employed by
the company should obtained.
 Internal check
◦ Should evaluate the reliability of internal check
employed in the company.
 Previous year audited accounts and reports:
◦ Should examine the last year balance sheet for
existing business to verify the opening balances of
assets and liabilities
 Audit program:
◦ He should then draft an audit programme and
commence the work of audit.

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