What are important factors to consider when developing an internal audit plan?
Planning brings promptness and perfection in performance. Planning in audit operations is considered as an essential prerequisite. It enables an auditor to cover different aspects of audit work in a systematic and methodical manner. Audit planning enhances the quality of audit work. Show
Audit Planning – Developing Effective Audit Plan Considerations in Audit PlanningAudit plans should be based on the knowledge of client’s business. The auditor should so plan his work that audit may be conducted in an effective and efficient manner. Due regard must be paid to client’s accounting system, policies and internal control procedures. The extent to which internal control system may be relied on is also important. Determination of audit procedures helps coordination of work. The audit plan should be revised as and when necessary. The following factors should receive due consideration while planning. 1. The size of the company and complexity of its operations, 2. Environment in which the company operates, 3. Previous experience with the client; and 4. Knowledge of client’s business. Knowledge of the Client’s BusinessKnowledge of the client’s business is very important. This will help the auditor identify the events, the transactions and practice that impact the financial information. Client’s business can be known from
Advantages of Audit PlanningAn effective, efficient and timely audit needs audit planning. A well drawn audit plan offers the following advantages. 1. It provides right means to accomplish audit objectives. 2. It ensures that no important area is left out. All important areas of management receive attention. 3. It helps in identifying potential problems. 4. It ensures timely completion of audit work. 5. It facilitates coordination of the audit work done by auditors and other experts. 6. It helps in improving the quality of audit work. 7. Good planning brings promptness and perfection in audit performance. Developing an Active Audit PlanAn audit plan gives not only the scope of audit but also facilitates smooth flow of audit work. Matters given below should be considered while developing the over all audit plan. 1. The terms of his appointment and statutory responsibilities. 2. The nature, extent and timing of reports and other correspondence. 3. Legal requirements. 4. Accounting policies followed by the client and changes therein. 5. Identifying important audit areas. 6. Items that require special attention e.g. transactions with outsiders in whom directors have special interest. 7. Internal control in operation and the degree of reliance to be placed on it. 8. Shifting of emphasis on specific audit areas. 9. Audit evidence to be obtained. 10. Role of internal auditors and their involvement in audit 11. Role of other auditors in the audit of subsidiaries or branches of the company. 12. Services of experts involved in the company work. 13. Allocation of work among joint auditors and control and review procedures thereon. 14. Staff requirements for the audit work. Depending upon the scope of audit work, the audit plan should be well documented. Preparation before AuditPreparation before audit refers to preliminary arrangements made by the auditor before commencing audit work. On being appointed for the first time, the auditor should do the following.
1. Agreement with the ClientHaving accepted an audit engagement, the auditor should enter into an agreement with the client. Such agreement should deal with
If an auditor is appointed to replace another auditor, he should enquire from his predecessor, the reasons for the change. 2. Scope of Audit work (Audit Engagement Letter)The scope of audit may be ascertained with reference to relevant statute. Generally, the audit engagement letter spells out scope of audit work in explicit terms. The auditor has to be well prepared accordingly. Sometimes, a full audit is required whereas in certain cases an audit is only for specific purpose. For example, joint stock company may ask for tax audit only. Contents of audit engagement letterAn audit engagement letter generally includes reference to the
The auditor at his discretion may include the following.
3. Knowledge of the Client’s BusinessAs discussed under considerations in audit planning, a client’s business can be well understood from
4. Knowledge of the Accounting System in UseThe auditor should study the accounting system followed by the client company. The auditor should ask for a list of books of accounts maintained and names of employees responsible for their maintenance and specimen signatures of such employees. He should also examine the internal check system as a sound system of internal check can minimize chances of errors and frauds in the books of accounts. 5. Information about Client’s StaffThe auditor should collect a list of principal officials of the company, together with the particulars of work assigned, scope of their authority and their specimen signatures. The auditor may go through organisation chart and manuals depicting the organisation. Memorandum of association, articles of association may also be studied to have a better understanding of the company affairs. 6. Technical DetailsIf the client’s business is of a technical nature, the auditor should familiarize himself with important technical details of that business. He should visit the workplace and acquire some technical knowledge to conduct the audit efficiently. 7. Instructions to and Information from ClientThe auditor should obtain information on nature of business, organisation and personnel, books of accounts, records, etc.
After knowing about the client, the auditor should instruct the client to keep all the financial records and other statements ready for audit. His instructions to the client will be on the following lines: What are important factors to consider when developing an audit plan?The 5 Elements of an Effective Internal Audit Preparation and Planning Process. Research the Audit Area. ... . Maintain Open Communications Throughout the Planning Process. ... . Conduct Process Walk-Throughs. ... . Map Risks to the Organization, Process, or Function. ... . Obtain Data Prior to Fieldwork.. What points must be considered while planning internal audits?8 Effective Steps to Perform an Internal Audit Successfully. Identify the Processes to be Audited. ... . Decide on the Frequency of the Audits. ... . Plan and Schedule the Audits. ... . Notify the People Involved. ... . Prepare the Audit Checklist and Execute Audit. ... . Record and Analyze Audit Findings. ... . Investigate to Develop and Implement Action Plans.. What are the factors to consider before implementing an internal audit function?5 critical success factors when implementing an audit management system. Define success. ... . Prioritize your needs and wants. ... . Identify and document your desired business processes. ... . Ensure you have the right stakeholders with the right skills—and the right authority. ... . Communicate, communicate, communicate!. |