Audit Planning:

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. 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.
The Audit Process
One of the objectives of Audit & Advisory Services (A&AS) is to maintain a
constructive and transparent relationship with our clients during their audits.
A&AS strives to have your continued involvement at every stage so you
understand what we do and why as well as how we work to minimize disruptions
of your daily activities.

The comprehensive Audit & Advisory Service auditing process includes four main
phases:

 Preliminary planning with the client, to determine the audit’s scope

 Fieldwork to collect, analyze and assess information (including data) on risk
levels and controls within the organization
 Reporting (1) to communicate our findings and recommendations for corrective
actions (if any) and (2) to finalize actions management will take to reduce
identified risks and improve controls
 Postaudit follow-up to determine the outcomes of actions taken and obtain client
feedback on the audit experience
DEFINITION
 Audit program (Audit plan)
An audit program, also called an audit plan, is an action plan that documents what
procedures an auditor will follow to validate that an organization is in conformance
with compliance regulations.

An audit program provides a basic plan for the audit team regarding the entity’s
business, its size, how to conduct the audit, allocation of work among team members
and the estimation of time within which it should complete the work. It contains
details regarding the relevancy of evidence, materiality level, risk tolerance, measure
of the sufficiency of the evidence. Thus, programs enhance the accountability of the
audit team and its members for the work performed by them.

The goal of an audit program is to create a framework that is detailed enough for
any outside auditor to understand what official examinations have been completed,
what conclusions have been reached and what the reasoning is behind each
conclusion. The framework should explain the audit's objectives, its scope and its
timeline. The audit program should also describe how working papers -- the
documented evidence of the audit -- will be collected, reviewed and reported.

Objectives of audit programs

 When developing an audit program, the internal auditor and its associated
audit team should start with outlining the audit's objectives, goals and
obligations.

 Audit program objectives help direct planning of the audit report and are
based on the policies, procedures and guidelines unique to the company.
These objectives may relate to and outline how the auditors will maintain
efficiency, professionalism and a specific code of conduct during audit
procedure.

 In addition to relevant regulatory compliance mandates, objectives for audit

programs should consider aspects such as management priorities, business
intentions, system requirements, business structure, legal and contractual
mandates, the expectations of customers and other interested parties,
 potential risk management vulnerabilities, and any corrective action taken
based on previous audits.

Advantages of the Audit Programme

1. An audit program helps in ensuring that all-important areas are considered while
conducting the audit.
2. An audit program helps an auditor in the allocation of work among its team
members according to their skills and competency.
3. It enhances the accountability of audit team members towards work performed
by them
4. An audit program also reduces the scope for misunderstanding among team
members regarding the performance of audit work.
5. It helps the auditor in checking the status of audit work, its progress, how much
it is left for performance while conducting the audit.
6. Auditor prepares audit working papers which contains a record of various audit
procedure applied which serves as evidence against the charge of negligence.
7. Audit program enables the auditor to keep a record of useful information
specifically for future audit and references.
Disadvantages of Audit Programme

1. Rigidity: There is no set standard audit program that can be applied in the case
of every entity. However, programs differ for different types of entities. Every
entity has its own problems. Therefore, we cannot apply for a single audit
program in the case of all business entities.
2. Reduces the Initiative of Efficient Staff: – A program reduces the initiatives
of efficient and competent staff. Thus, staff members cannot make changes to
the audit plan and cannot make suggestions for it.
3. Audit Work becomes Mechanical: The program becomes mechanical when it
ignores other aspects like internal control.
4. Overlooking New Areas: A program may overlook the new areas. With the
change in time and technology, new problems may arise that an audit program
may not consider.
 Audit Note Book
Audit Note Book is a register maintained by the audit staff to record important
points observed, errors, doubtful queries, explanations and clarifications to be
received from the clients. It also contains definite information regarding the day-
to-day work performed by the audit clerks. In short, audit note book is usually a
bound note book in which a large variety of matters observed during the course of
audit are recorded. The note book should be maintained clearly, completely and
systematically. It serves as authentic evidence in support of work done to protect
the auditor against any legal charge initiated against him for negligence. It is of
immense help to the auditor in preparing audit report. It also acts as a valuable
guide for conducting audit for future years.

Contents of Audit Note Book

The following matters should have been incorporated in an Audit Note Book:
1. A list of the account books normally used and maintained.
2. Names of the principal officers, their duties and responsibilities.
3. Nature of business carried on and important documents relating to the
constitution of business like Memorandum of Association, Articles of Association,
Partnership deed etc.,
4. Extracts of minutes and contracts affecting the accounts.
5. Extracts of correspondence with statutory authorities.
6. Copy of audit programme.
7. Accounting methods, internal control and internal check system in operation.
8. Routine queries like missing receipts and vouchers etc.
9. Details of errors and frauds discovered during the course of audit.
10. Points to be included in audit report.
11. Details of all important information to be used as reference for future audits.
12. Date of commencement and completion of audit.

Advantages of Audit Note Book

1. Facilitates Audit Work: It facilitates the work of an auditor as all
important details about the audit are recorded in the note book which the audit
clerk cannot remember everything at all the time. It helps in remembering and
recalling the important matters relating to the audit work.
2. Preparation of Audit Report: Audit note book helps in providing required
data for preparing the audit report. An auditor examines the audit note book before
preparing and finalizing the audit report.
3. Serves as Documentary Evidence: Audit note book serves as a
documentary evidence in the court of law when a suit is filed against the auditor
for his negligence.
4. Serves as a Guide: When a audit assistant is changed before the completion
of audit work, audit note book serves as a guide in completion of balance work. It
also acts as a guide for carrying on subsequent audits.
5. Evaluating Work of Audit Staff: It helps to assess the work performed by
the audit staff and helps in evaluating their level of efficiency.
6. Fixation of Responsibility: Audit note book helps in fixing responsibility
on concerned clerk who is responsible for any undetected errors and frauds in the
course of audit.
7. No Dislocation of Audit Work: An audit note book contains all important
details about audit hence any change in the audit staff will not disturb or dislocate
the audit work.

Disadvantages of Audit Note Book

1. Fault-finding Attitude: It leads to development of a fault-finding attitude in
the minds of the staff.
2. Misunderstanding: Very often maintenance of audit note book creates
misunderstanding between the client’s staff and the audit staff.
3. Improper Preparation: Since it serves as evidence in the court of law, it
needs to be prepared with great caution. When the note book is prepared without
due care it cannot be used as evidence against the auditor for negligence.
4. Adverse Effects on Subsequent Audits: Since audit note book is used in
performing subsequent audits, any mistakes in the note book may have adverse
impacts on the next audit.
 Audit Working Papers
Audit working papers are the outcome of the documentation process. Working
papers are the record of various audit procedures performed, audit evidence
obtained, allocation of work between audit team members etc. Audit working
papers are the documents and evidence that an auditor collects and retains with
himself during the audit.

Audit working papers support the work that the auditor performs for providing
assurance that he conducts the audit in accordance with all the applicable standards
on auditing (SA’s). Audit working papers help auditor in audit planning and
collecting evidence of the audit work performed on which his opinion is based.
Working papers helps auditor in allocating the time required for performing various
audit procedures. The working paper helps auditor to maintain a record of various
matters discussed with management while conducting an audit.

Working papers provide information on the following matters

 Information about audit team members and work allocated to them. Information
regarding unallocated work
 Whether he follows all the applicable standards on auditing (SA’s) or not
 He properly plans the audit or not
 Whether there was proper supervision over the work performed. Enabling the
audit team members to be responsible for the work performed by them
 An auditor undertakes an appropriate review or not
 Whether the evidence is relevant, sufficient and appropriate to support the
opinion of the auditor

We can divide the working papers into two parts

1. Permanent audit file: A permanent audit file contains information which is

of continuous interest and is relevant in future audits. Information like articles
of association, loan agreements, leases, documents related to internal control
of the entity, record of accounting policies followed by the entity on a
continuous basis, significant observations of previous audits etc.
 2. Current audit file: A current audit file contains information regarding audit
conducted for the current period. It includes information like financial
statements and audit report of the entity, trial balance and worksheets, records
regarding internal control risk of an entity, external confirmations received,
queries of auditor and reply received from the management etc.

Ownership of Working Papers

The working papers prepared during the engagement, including those prepared by
the client for the auditor, are the auditor’s property. The only time anyone else,
including the client, has a legal right to examine the papers is when a court
subpoenas them as legal evidence.

After the engagement, working papers and computer files are retained on
the CPA’s premises for future reference. Many firms follow the practice of
microfilming hard copy working papers after several years to reduce storage costs.

Responsibility, Protection, and Preservation of Working Papers

Whosoever has working papers should be responsible for their safe custody. They
should, in no case, be shown to a third party except with the client’s permission.
After the audit report has been prepared and delivered to the client, these papers-
may be filed and preserved for five to ten years or even more.