Question

How to develop simple audit program for an account balance considering the influence of risk and tolerable misstatement?

Answer 1

An auditor prepares a plan after the selection of senior and junior staffs allocating the jobs to them, mentioning when to start, how to do the work etc. This plan is known as audit program. An auditor should include all the procedures in written form, objectives of each sector and all the directions which are to be given to the staffs which helps to control their works and helps to implement such programs into action. For the devlopement of Audit programme following points should be kept in mind.

1.Statement of Profit and Loss account, Balance sheet, Auditors’ and Directors’ reports of the previous year and the reports of internal auditor

2. Analytical review procedures in order to :

• identify areas of accounts which are important because of their size
• highlight unusual or unexpected figures or relationships in the accounts
• design audit test which concentrates on important and unusual items
• obtain sufficient audit assurance to allow the reduction or even elimination of detailed testing in some areas

3. Assessment of audit risk by using the professional judgement and audit procedures to ensure that it is reduced to an acceptable low level.

4.Class of accounting transactions which are relevant and to decide the type of testing and samples.

5. Selection of representative samples.

6. Performance of analytical review procedures, substantive tests of detail to obtain sufficient, relevant and reliable audit evidence for each audit objective.

7.Working papers contain all audit evidence, and are cross-referenced.

8. Formulation of draft audit opinion.

9. Comparison of budgeted time to actual and reasons for major variations.

10. Review of unadjusted errors to determine whether individual and aggregate effect is material.

11.Updation of audit working papers including permanent records.

12.Track risk assessments annually and centrally. By tracking audit risk assessments and data in one place, it allows to start comparing risk over time and build trending reports on risk. This can be value in the annual audit report to executive management