1 Planning an Audit
Planning an audit involves:
- Establishing audit strategy; and
- Developing an audit plan
1.1 Why audit planning is needed?
Adequate planning helps the auditor in auditing financial statements in number of ways and includes:
- Giving suitable attention to important areas of audit
- Identifying and resolving problems in timely manner
- Organizing and managing an audit to conduct it efficiently and effectively
- Helping auditor in selecting audit team members and assigning work to them
- Facilitating auditor to direct, supervise and review the work of team members
- Helping in coordinating work of other auditors and experts
1.2 Role of planning
The nature of audit planning depends on:
- Size and complexity of an entity
- Auditor’s previous experience of the same entity; and
- Changes in circumstances during audit engagement
It is not a standalone stage of an audit which takes place at the start of every audit. Rather planning can be done or revisited as and when it is needed even during the audit engagement i.e. it is an iterative and continual process. It usually starts at the conclusion of previous audit and continues until current audit engagement is concluded.
However, planning involves the consideration of timing such activities that are required to be performed before further audit procedures are carried out. For example before risk assessment takes place auditor should decide on:
- What analytical procedures for risk assessment purposes
- How to obtain understanding of legal and regulatory framework and entity’s compliance to same
- Defining materiality
- Whether other’s help is needed e.g. involvement of experts
The auditor may decide to discuss the components of planning to make the engagement efficient however, care should be taken not to discuss to the extent that it negatively affects the effectiveness of audit my making the procedures too predictable and thus giving management the chance to circumvent audit procedures.
1.3 Involvement of key team members
Involving other team members with engagement partner in discussions increases the effectiveness and efficiency of planning process as the collective knowledge and experience helps in planning and performing audit.