Chapter 9: Audit Planning and Documentation Professional scepticism an attitude that includes a questioning mind, being alert to conditions

s or recognizing circumstances that may cause the financial statements to be materially misstated due to fraud or error; and a critical assessment of audit evidence. Professional judgment application of relevant training, knowledge and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Audit strategy sets the scope, timing and direction of the audit and guides the development of the more detailed audit plan. Audit plan sets out the nature, timing and extend of the planned audit procedures to be performed by engagement team members. Objectives of Audit Planning : Appropriate attention is paid to risky areas Potential problems are identified and resolved in a timely basis Assists in the selection of engagement team members with appropriate levels of capabilities and competence to respond to risk Proper assignment of work to team members Timely meeting of the reporting deadline Proper coordination of work done by experts

Audit Program list of audit procedures to be performed by audit staff which will incorporate the mix of tests of controls and substantive procedures and also specifies the nature and extent of the checking Advantages of Audit Program: Provides a clear set of instructions on the work to be carried out A means of controlling and recording the proper execution of the work Audit work will not be duplicated

Standardised Audit Programs pre-prepared listing of objectives and audit procedures which is used on any audit Advantages of Standardised Audit Programs: Improves the efficiency of the audit and facilitates delegation and quality control Helps to streamline work and acts as a checklist to ensure that important areas are not overlooked Helps to familiarize junior staff with standard procedures such as attending physical inventory count

Disadvantages of Standardised Audit Programs: May be inappropriate to follow a standard set of procedure for a particular client Adopting a standard approach may stifle initiative and discourage exercise of professional judgement

Non-standard Audit Program audit procedures are tailored to suit the peculiar circumstances of the audit client Advantages of Non-standard Audit Program: Design of procedures matches the actual accounting system of the entity Balance between test of controls and substantive procedures can be varied to match client circumstances Better understanding of purpose as staff performing the procedure was involved in designing the program

Audit Documentation record of the audit procedures performed, relevant audit evidence obtained and conclusions reached to support the audit report Objective of Audit documentation: Provides evidence that the audit was planned and performed in accordance with ISAs and other legal and regulatory requirements Assists the engagement team to plan and perform the audit Enables the team to be accountable for its work Allows a record of matters of continuing significance to be retained Useful in the event of litigation against the audit firm Assist team members responsible for supervision to direct, supervise and review audit work

Form & content of working papers: Size and complexity of the entity Nature of the procedures to be performed Identified risks of material misstatements Extent of judgement required in performing the work and evaluating the results Significance of the audit evidence obtained

Permanent audit file contains historical data about the client that are of continuing relevance to the audit and is updated annually. Useful as it provides new or junior team members with background details about the clients business and systems prior to the commencement of the audit. Contents: Engagement letters Memorandum and articles Legal documents Previous years signed accounts

Current audit file contains work performed for the current years audit. Contents: Financial statements Notes of board minutes Written representation letter Accounts checklists

Advantages of Standardised Manual AWP : Improves the efficiency of the preparation and review of working papers Facilitates delegation of work Ensures quality of audit is maintained and auditing standards are complied with Useful for routine documentation

Disadvantages of Standardised Manual AWP: Restrain the initiative of audit team and discourages exercising of professional judgement May overlook or miss out errors during the conduct of audit work May inhibit audit staff from making probing investigations when they are put on enquiry When clients staff become familiar with the work of audit teams work, fraud may be committed on areas perceived to receive little attention from auditors

Advantages of Automated AWP: Neater and easier to review Automatic updating facilities saves time and audit effort when changes are made Risk of error is reduced Standard working paper can be downloaded from remote locations at clients premises thus reducing the need to transport voluminous files and papers Completed working papers can be transmitted back to audit office for review thus resulting in considerable time and cost savings

Objective of Review Procedures: Work has been performed in accordance with the audit plan and audit program Work performed and results obtained have been adequately documented Significant matters or findings have been resolved or are reflected in audit conclusions Objective of audit procedures have been achieved Conclusion expressed are consistent with the results of the work performed and supports the audit opinion

Hot review carried out during the audit assignment before the audit report is signed. Checked by a more experienced member of the staff on an ongoing basis as the audit proceeds Adequate feedback is given to the team members enabling them to rectify and omissions in the procedures they have carried out All work should be reviewed at the final stage of the audit by the responsible partner This ensures that risk areas identified have been adequately covered by audit work and all conclusions have been stated and supported

Cold review carried out after the audit report has been signed by independent persons Can be carried out by a suitably qualified staff from the same office or by another firm This ensures adequate feedback is given so the perceived weaknesses in the procedures may be discussed and improved Also ensures work performed is in accordance to firms standards.