Activity Sheet - Module 5

1. What is the general objective of planning for an audit?

The general objective in planning an audit is to facilitate the effective

achievement of the aim of an audit, the expressions of an opinion on the fairness of the

financial statements.

2. Contrast the following terms:

Audit strategy. An audit strategy sets the direction, timing, and scope of an audit. The

strategy is then used as a guideline when developing an audit plan. The strategy

document usually includes a statement of the key decisions needed to properly plan the

audit.

Audit plan. Audit planning is more on a structural plan, laying out all the tools, strategies

or techniques needed for a specific audit. It is also the first and basic step of auditing

procedure.

Audit program. The audit program is where all the work began. It will show what steps,

procedures, and evidence are needed to obtain accurate information in a step by step

manner. And the audit program is the second step in audit for the examination of

evidence.

3. Enumerate the different planning procedures. Explain each one briefly.

Analytical review. It is the procedure used to assess the unusual transactions or events as

the principle or basic to perform other procedures. The analytical procedure could be
used for the types of transactions or events that occur regularly or have a connection with

others’ transactions or events.

Inquiry. Auditors inquire accountant and related management to gather information and

obtain an explanation on the matter that found by auditors. Audit inquiry is sometimes

used by the auditor to obtain the audit evidence and sometimes is used to obtain an

understanding of some nature of business or accounting transactions in order to gain

enough knowledge to design and perform testing.

Observation. Observation is one of the audit procedures that auditors use to obtain an

understanding and gather audit evidence mainly to the real process or the ways how

clients have done some specific business process. This kind of audit procedure is mainly

to confirm the process that the client told, physical confirmation, or some time used to

obtain audit evidence in order to make their own projection which will be used for

comparison with the client figure.

Inspection. Inspection refers to verification or vouching documents. This is one of the

most important and it can be 60% of audit work involve with the inspection of

documents.

Recalculation. Recalculation is the type of audit procedure that normally done by re-

performing the works performed by the client in the purpose of assessing if there any

difference between the audit’s work and the client’s work.

The purpose of analytical procedures is used throughout the audit process and are

conducted for three primary purposes. First, it was used in preliminary analytical reviews

to help assess the risk of material misstatement in order to determine the nature, timing,

and extent of audit procedures, and to help the auditor develop the audit strategy and

audit program. Second, it was used as substantive procedures when the auditor considers

that the use of analytical procedures can be more effective or efficient than tests of details

in reducing the risk of material misstatements at the assertion level to an acceptably low

level. And lastly, it was used in final analytical review to perform as an overall review of

the financial statements at the end of the audit to assess whether they are consistent with

the auditor’s understanding of the entity.

5. What are the contents of the audit plan?

Audit planning includes establishing the overall audit strategy for the engagement

and developing an audit plan, which includes, in particular, planned risk assessment

procedures and planned responses to the risks of material misstatement. The auditor

should develop and document an audit plan that includes a description of the planned

nature, timing, and extent of the risk assessment procedures, the planned nature, timing,

and extent of tests of controls and substantive procedures and other planned audit

procedures required to be performed so that the engagement complies with accounting

standards.

6. What are the two types of audit programs? Explain each type briefly.
 Fixed Audit Program. It is a set of standardized instructions, which are to be followed

while conducting the audit. A fixed audit program includes all possible audit procedures,

although all of them may not be applicable in a situation. Its attempts to take care of

every possible audit situation, therefore, it prescribes procedure to be followed in each

situation.

Flexible Audit Program. A flexible audit program does not prescribe the exact audit

procedure to be followed. It prefers to give an outline of the scope, nature, and limitations

of the audit assignment. It does not predetermine the nature of work to be performed by

each person of the audit staff. Most of the things are decided as the work proceeds and

the reliability of procedures and internal control system becomes known to the auditor.

7. Planning is a discrete phase of the audit. Is this statement correct? Explain.

No. Planning is not a discrete phase of an audit but, rather, a continual and

iterative process that might begin shortly after the completion of the previous audit and

continues until the completion of the current audit.

8. May an external auditor use the work of internal auditor? Explain.

The external auditor can use internal auditors work of the function to modify the

nature or timing, or reduce the extent, of audit procedures to be performed directly by the

external auditor. In determining whether the work of the internal audit function can be

used, and if using the work of the internal audit function, to determine whether that work

is adequate for purposes of the audit.

9. Give examples of other planning considerations.

should so plan his work that audit may be conducted in an effective and efficient manner.

The following factors should receive due consideration while planning. The size of the

company and complexity of its operations, Environment in which the company operates,

Previous experience with the client, and the knowledge of client’s business.

10. Which of following audit team members may perform supervision duties?

Partner or sole proprietor. A partner or sole proprietor can plan and manage audit

engagements, understand client business, and provide appropriate audit services to meet

client expectations, maintain up-to-date knowledge about company standards, policies and

regulations, address client concerns and escalate complex issues to management for

immediate resolution, develop innovative ideas to extent client services, maintain positive

and long-term relationships with clients, provide support to ensure timely completion of audit

projects, manage expenses and staffing to increase revenue, assist in developing company

standards to improve effectiveness and quality of deliverables, build highly skilled and

achievement-oriented team environment, develop new client contacts for business growth,

attend client meetings and stay abreast with industry trends.

Manager. The duties of an audit manager often vary depending on the size of the

organization and where it is located but some of the basic duties of an audit manager can

include, preparing and executing operational and monetary audits, developing references and

reports centered on audits and offering these concepts to the management, ascertaining

business process threats, developing professional development procedures for the low-

ranking staff of the organization, organizing and distributing resources and manpower in
harmony with abilities and schedules, produce reports underlining problems and providing

prospective ways out, To guarantee obedience with external and internal requirements

Senior associate. Senior audit associates perform various functions in ensuring effective

oversight of auditing duties in an organization. The duties of a senior associate is to plan,

develop strategies and supervise fieldwork team in all phases of an audit engagement,

prepare financial statements and require disclosures in compliance with policy and

regulations, perform planning, creating, and developing assignments, identifying and

resolving assurance engagement, work closely with staff and partners on practice

development and client management, perform reviews of clients for compliance, monitor

engagement status and budget requirements for profitable and timely completion, Research

technical issues that arise during an engagement, develop and interact relationships with

accounting staff, CFOs, and controllers, train and manage teams (up to three members)

with or without any experience, carry out private and public audits of financial statements

in accordance with accounting standards, and communicate with audit senior management

to create more efficient testing strategies using data.

Audit associate. Are accounting specialists who assist the in-house auditing team with

their day-to-day functions. Their duties is to support the accounting and auditing team in

their daily functions, to prepare and manage audit budgets, to verify company financial

information, to plan and perform company financial audits, to create or manage internal

auditing systems, to prepare audit reports and statements for company managers, to resolve

client audit queries efficiently, to ensure compliance with state and company best practices.

And to train and mentor audit interns.