This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.

1. PLANNING OF AUDIT AND FINANCIAL STATEMENT
BY
S.S. Afemikhe Consulting

2. TABLE OF CONTENTS
TABLE OF CONTENT
o.1 Effective date
0.2 objective
1.0 Planning an audit
1.1 Why audit planning
1.2 What audit plan is and is not
1.3 Role and timing of audit planning
1.4 Involvement of key team members
2.0 Initial activities
2.1 initial audit engagement
3.0 Audit planning activity
3.1 Audit strategy
3.2 Audit plan
3.3 Changes in planning decision during engagement
3.4 Direction, Supervision and Review `
4 Documentation
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3. PLANNING AN AUDIT OF FINANCIAL STATEMENTS
0.1 Effective Date
This ISA is effective for audits of financial statements for periods beginning
on or after December 15, 2009.
0.2 Objective
The objective of the auditor is to plan the audit so that it will be performed
in an effective manner.
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4. PLANNING AN AUDIT OF FINANCIAL STATEMENTS
This involves:
I. Establishing audit strategy
II. Developing an audit plan
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5. Why Audit Planning is Needed
Audit planning helps the auditor in a number of ways which includes:
• Giving suitable attention to important or high risk areas of audit engagements.
• Identifying and resolving problems in a timely manner.
• Organizing and managing an audit effectively and efficiently.
• Selecting audit team members and in assigning work to them.
• Helps the auditor in directing, supervising audit engagements and also to carry
out review of the work of team members.
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6. What Audit Planning is & Not
Audit planning is not a stand alone stage of an audit which takes place at the start
of every audit.
What Audit Planning is
• It is a continuous process. It usually starts at the conclusion of the previous audit
and continues until current audit is concluded.
• However, planning involves the consideration of nature, timing, and resources
required to perform an engagement.
E.g. physical verification of items of PP&E
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7. Role and Timing of Planning
The nature and extent of audit planning depends on:
• Size and complexity of the entity
• Auditor’s previous experience of the same entity
• Changes in circumstances during audit engagement.
Planning for an engagement includes consideration of the timing of certain activities and procedures to be
completed prior to the performance of further audit procedures. E.g. prior to identification and assessment
of the risk of material misstatement, such matters as:
• The Analytical procedure
• Understanding of legal framework
• Determination of materiality
• Involvement of expert
• Performance of risk assessment
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8. The auditor may wish to discuss the components of planning (at the pre-
audit meeting) to make the engagement efficient. However, care should be
taken not to discuss to the extent that it negatively affects the effectiveness
of the audit by making It too predictable and thus giving management the
chance to circumvent audit procedures.
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9. Involvement Of Key Team Members
Involving other team member with engagement partner in discussions
increases:
• The effectiveness and efficiency of planning process
• collective knowledge and experience are shared in the process.
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10. Initial Activities
At the commencement of current audit engagement before any other significant activities
take place, auditor is required to perform the following procedures:
• Perform procedures regarding client continuance and specific audit engagement.
• Evaluation of compliance with ethical requirement of the engagement team (Integrity &
independence)
• Agreeing the terms of engagement with the client and understanding of such terms.
Performing such initial activity enables the auditor to identify any problem right from the
beginning of an engagement which may affect the audit adversely.
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11. Initial Audit Engagements- Additional Consideration
The purpose and objective of planning audit engagement is same either in its initial
engagement or recurring engagement. However, in case of initial audit engagement, the
auditor lacks previous experience with the entity thus, it impacts on the planning activity.
In the case of initial audits, the auditor is required to undertake the following steps before
any other activity:
• Communicate with outgoing auditor in compliance with ethical requirements
• Perform client acceptance procedures and specific audit engagement procedures
Example:
oDiscuss with the management any major issues regarding initial selection as
auditors
oAudit procedures necessary to obtain audit evidence in respect of opening
balances
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12. Audit Planning Activity
This entails the design of an audit strategy which sets out:
• Scope
• Timing
• Direction of the audit engagement.
Once audit strategy is in place audit plan can then be developed on the basis
of the audit strategy.
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13. Audit strategy
An audit strategy outlines the OBJECTIVES of the audit that is to be performed – like crafting the
skeleton of a body. A strategy is like understanding the entity and its environment, E.g. ICS
(Internal Control Systems) and risk and materiality?
In determining audit strategy the auditor:
• Determines the characteristics of the engagement that defines the scope. E.g. applicable
accounting frame work, users of auditor’s report , number of branches to be visited etc.
• Identify the reporting objective of the engagement
• Nature of the communication required. E.g. deadline for interim report, stock taking schedule
etc.
• Consider other important factors that will determine the direction of the audit engagement.
Example:
o knowledge and experience of team members of similar audits.
o Determine the nature and extent of resources required to perform the audit
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14. Audit Plan
It is a known fact that the primary responsibility of an auditor is not to detect
fraud. However, detection of fraud by a auditor is as a result of a well planned
audit.
Once audit strategy is in place, audit plan can then be developed which include
the description of :
• The nature, timing and extent of risk assessment procedures control risk +
Inherent risk + Detection risk = Total audit risk
• The nature, timing and extent of further audit procedures (substantive
tests or extended substantive tests)
• The nature, timing and extent of other audit procedures
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15. Changes in Planning Decisions During Engagement
As mentioned earlier, planning is not one time activity, auditor may need to revisit the audit strategy and
audit plan as changes in situation dictates (changes in nature, timing, extent of audit procedure). Such
changes can occur due to:
• Unexpected event
• Changes in condition e.g. scope
• Audit evidence - The auditor may become aware of discrepancies in accounting records, or conflicting
or missing evidence.
• Acquiring informat
• ion that is significantly different from the information the auditor had as at the time of planning.
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16. Changes in Planning Decisions During Engagement
Other factors that may cause change to the audit plan include:
• The extent of misstatements that the auditor detects while performing
substantive procedures may alter the auditor’s judgment about the risk
assessments and may indicate a significant deficiency in internal control.
• Analytical procedures performed at the overall review stage of the audit
may indicate a previously unrecognized risk of material misstatement
In such circumstances, the auditor may need to reevaluate the planned audit
procedures, based on the revised consideration of assessed risks for all or some of
the classes of transactions, account balances, or disclosures and related assertions.
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17. Direction, Supervision and Review
The level of direction, supervision and review of team members required by a
auditor depends on factors such as:
• The entity under consideration, its size and complexity
• The area of audit
• Assessment of risk of material misstatement and the auditor’s expectation
• Capabilities and competencies of audit team members
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18. Documentation
The form and extent of audit documentation is a matter of professional judgment, and is influenced by the
nature, size and complexity of the entity and its internal control, availability of information from the entity
and the audit methodology and technology used in the audit.
Audit plans are usually being documented in the audit plan memorandum (APM). The auditor shall
document:
• Audit strategy - the decisions taken to make audit plan and communicate important matters to audit
team members
• Audit plan – the nature, timing and extent of audit procedure. This aids the review of how an
engagement was conducted. Usually standard audit programs or checklist are used for this purpose.
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19. Documentation Cont’d.
• Risk assessment results: e.g.
o Debtors - The risk that debt will become bad or insufficient provision is made for
bad and doubtful debts.
o Pension – The risk that management is not providing enough to meet its pension
liability or provision for pension is not being made at all.
• Materiality assessment - formula used or other basis
• Resources -names of audit engagement team
• Timing – duration of the audit assignment
• Significant changes in audit plan and strategy- this explains why changes were made
and appropriateness of such changes.
• The sample size etc.
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20. THANK YOU FOR LISTENING
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