Question

In all walks of life, it is necessary to plan actions before those actions are performed. The Audit Standard Guidelines states that the Auditors should adequately plan, control, and record their work:

a) What are five of the purposes of planning an audit assignment?

b) Describe substantive testing and give examples for the adoption of this procedure for the detailed audit work.

c) What key stakeholders should the auditor consult during the planning stage?

Answer 1

a.

-Planning in auditing encompasses developing an overall plan for the expected scope and conduct of the auditand developing an audit programme showing the nature , timing and extent of audit procedures.

-The audit planning is necessary to conduct an effective audit in an efficient and timely manner.

Five Purpose of Audit Planning-

1. Attention to Important Areas-

-planning helps the auditor to devote appropriate attention to important and material aspects and areas of the audit.

2. Timely resolution of Potential Prolems-

The Purpose of audit planning is to help the auditor to identify and resolve the potential problems & Misstatement on timely basis in an effective manner.

3.Proper Organization and management of Audit Engagement-

Adequate planning helps the auditor in properly organizing and managing the audit engagementso that it is performed in an effective and efficient manner and sufficient and appropriate audit evidence has been obtained to form the opinion.

4. Selection,Direction and Supervise the Engagement Team-

-Planning assists the auditor in selection of engagement team members with appropriate levels of capabilities and competence.

-Planning faciliates the direction and supervision of engagement team members and to review their works on timely basis.

5.Coordination-

Planning helps the auditor in coordination of the work done by the other auditors , internal auditors, management experts, auditors expert etc. and issue the appropriate audit report in timely basis.

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b.

-A substantive testing or procedure is a process, step, or test that creates conclusive evidence regarding the completeness, existence, disclosure, rights, or valuation (the five audit assertions) of assets and/or accounts on the financial statements.

-To qualify as a substantive procedure, enough documentation must be collected so that another competent auditor could conduct the same procedure on the same documents and make the same conclusion.

-Irrespective of the assessed risk of material misstatement,the asditor shall design and perform stubstantive procedures for each material class of transactions , account, balance, and disclosures.

-Principally, substantive testing is to confirm the following financial assertion:

• Verified existence,
• Confirmed rights and obligations,
• Check validity,
• Verified completeness.
• Check occurrence
• Check completeness,
• Confirmed accuracy,
• Verified authorization,
• test cut-off,
• check classification.

-Example of the substantive testing or procedure is External confirmation to check the Following assertions -

a. Existence or occurrence

b. Completeness

c. Rights and obligations

d. Valuation or allocation

e. Presentation and disclosure

- process of the External confirmation proceduer-

step 1- Determine the information to be confirmed or requested

Step-2 - Select the appropriate comfirming party by taking the competence, objectivity and capability of the confirming party to produce the information

Step-3- Design the confirmation request

Step-4 Send the request

Step-5- Evaluate the information received from the confirmimg party.

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c

The auditor should consult the following stakeholders during the planning stage-

1.To the Management

2.To the TCWG or those who charged with management.

3.If necessary the auditor may consult with the Govt. before planning in the planning stage.

-Following are the benefit from consultation with the stakeholders.-

i.Firstly, decision making and planning will be more informed and in tune with those who the actions will affect.

ii.Secondly, there will be greater satisfaction from stakeholders with the outcome.

iii.This in turn will lead to a greater chance of a successful implementation of the planning.

iv. Consultaion will give the information and idea that may not bw previously known to the auditor.