The document discusses audit planning. It states that audit planning involves developing knowledge of the client's business, assessing risks, preparing an overall audit plan and audit program, and considering factors like the client's industry and accounting systems. The planning process aims to make the audit more effective and efficient by establishing a general strategy and approach. Key aspects of planning addressed include evaluating internal controls, setting materiality, determining the nature, timing and extent of procedures, and documenting and adjusting the plan as needed.

1. BY
Atta-ur-Rahman Arif

2. MEANING
Action to be taken by an auditor, in
respect of any particular field of
verification and reporting, should
be so design that it may enable him
to conduct an audit more
effectively.

3. MEANING
According to AS # 04
“ Planning means developing a
general strategy and a detailed
approach for the expected nature,
timing and extent of the audit. The
auditor plans to perform the audit in an
efficient and timely manner.”

4. OVERALL AUDIT PLAN
According to AS # 04
“The auditor should develop and
document an overall audit plan,
describing the expected scope and
conduct of the audit”

5. 6-5
Audit Planning
Decide whether
to accept the
prospective client
Obtain knowledge
of client’s business
and environment
Make preliminary
arrangements with
the client
Prepare the
engagement letter
Assess risks of
material misstatement,
including fraud risk
Prepare the audit
plan, preliminary
program, and time
budget

6. FACTORS TO BE CONSIDERED
Nature of business
Size and complexity of business
Environment in which an enterprise
operates
Methods of processing transactions
Reporting requirements

7. Previous experience with the client
Knowledge of clients business
Industry in which the enterprise is
involved
Specific methodology and technology
used
FACTORS TO BE CONSIDERED

8. 6-8
Sources of Information
 Inquiries of management
 Industry Accounting and Auditing Guides
 Industry Risk Alerts
 Government publications
 Prior company annual reports and SEC filings
 Prior tax returns
 Electronic sources
 Tour of plant and offices
 Analytical procedures

9. 6-9
Assessing Fraud Risks
 Two types
 Fraudulent financial reporting (management fraud)
 Misappropriation of assets (defalcations)
 Procedures to assess fraud risks
 Discussion among engagement team
 Inquiries of management and other personnel
 Planning analytical procedures
 Considering fraud risk factors
 Incentives
 Opportunity
 Attitude

10. PLANNING PROCEDURE
Audit planning is a continuous process and can be
classified into following stages:
1. Sound knowledge regarding business of client
2. Developing an overall audit plan
3. Implementation the audit plan through audit
programme
4. Updating the audit plan according to the
changes
5. Post audit planning review in form of
suggestions

11. KEY MATTERS
 KNOWLEDGE OF THE BUSINESS
 General economic factors and industry
affecting the entity’s business.
 Important characteristics of entity like
business, financial performance and
reporting requirements including changes
since the last audit.
 General level of competence of
management

12. KNOWLEDGE OF THE BUSINESS
 Auditor should obtain knowledge of
 Annual accounts to shareholders
 Minutes of Shareholders, directors and Committees
 Internal financial reports
 Previous year’s working papers
 Discussion with client’s management and staff
 Policy, accounting and management manuals
 Government policies and their impact on business
 Visits of client premises and plants

13. Overall Audit Strategy
ACCOUNTING AND INETRNAL CONTROL SYSTEM
 Understanding the accounting policies
and changes in those policies.
 The effect of new auditing or accounting
pronouncements.
 Sound knowledge of internal control
system especially on test of control and
substantive procedures.

14. Overall Audit Strategy
RISK AND MATERIALITY
 Expected assessment of inherent and
control risks.
 Identification of significant audit areas.
 Setting of materiality level for audit
purposes.
 Possibility of material misstatement,
including the experience of past periods
or fraud.

15. Overall Audit Strategy
NATURE, TIMING AND EXTENT OF PROCEDURE
 Possible changes of emphasis on specific
audit areas.
 Effect of information technology on the
audit.
 Work of internal auditing and its
expected effect on external auditing.

16. Overall Audit Strategy
 COORDINATION AND REVIEW
 Involvement of other auditors in the audit
of components for example subsidiaries,
branches and divisions.
 Involvement of experts.
 Staffing requirements.
 Number of locations.

17. Overall Audit Strategy
 OTHER MATTERS
 Possibility that the going concern
assumption may be subject to question.
 Conditions requiring special attention,
such as the existence of related parties.
 The terms of engagement and the
statutory responsibilities.
 The nature and timing of reports.

18. DOCUMENTATION OF PLAN
Auditor should document his plan in
the end of the first stage of planning.
Form and extent of document depend
upon the size of each individual audit.
Auditor should follow time table
showing allocated hours for each audit
procedures.

19. AUDIT TIMETABLE
 Auditor should document an overall audit
timetable setting out the dates agreed with
the client for the commencement and the
completion of audit.
 Make provision for phasing the audit over
the year instead of carrying out the entire
audit work at year end.

20. ADJUSTMENT OF PLANNING
 Auditor should be continuously amendable to
circumstances with which he is confronted
during audit.
 The errors noticed, should be given due
consideration as all these greatly influence the
audit plan.
 Should extend the scope of audit by increasing
the number of samples in the test if the errors
or fraud has been found

21. Specific Planning Area
 Time Budgeting
 Staff Planning
 Client’s work Support
 Extent of reliance over internal control
 Meetings with tax and finance department
 Joint audit of sectional audit
 Work performed by distant offices

22. BENEFITS OF PLANNING
 Appropriate attention to important areas of
audit.
 Prompt identification of potential problems.
 Expeditious completion of task by exercising
proper control and timing.
 Proper utilization of audit force available.
 Effective coordination of audit assignment.
 Review of field work by seniors becomes
simplified and speedy.

23. Advantages of Planning
1. Progress monitor is easy
2. Uniformity in audit work
3. Division of work made easy
4. Responsibility can easily be fixed when divided
properly
5. Final review made easy

24. Disadvantages of Planning
 Audit staff loose their initiative and interest
 Audit program may not cover each and every aspect
 Audit became too mechanical
 Rigidity in audit work unless the program not
frequently reviewed and modified