Question

Throughout the audit, audit clients will be informed of the audit process through regular status meetings and/or communications. The audit team makes every effort to discuss audit observations, potential issues, and proposed recommendations as they are identified. In some instances, it is necessary to work directly with audit clients to determine or validate the root cause and discuss ways to eliminate the root cause. There are some arguments in the field of auditing that informing each and every details of audit plan to the client is a good idea, but reduces the overall effectiveness of audit. Others argue that the auditor can disclose some non crucial information that to the client that doesn’t affect the audit procedures or collection of evidence.

Question

1. Is it right to for an auditor to disclose all the plan and procedure to the audit client? If Yes, what is going to be its effect on audit?​​​​​​​​​​( 2 Marks)

2. Suppose you are not disclosing any details of your audit plan to the client, is that going to affect the process of audit in any manner? Justify your answer.

Answer 1

1. Disclosing plan and procedure of audit completely depends on the engagement team and their professional judgement. There are certain mandatory areas in which we are depended upon client for performance of audit procedures. And there are also certain areas which we do as a surprise check such as cash count. With regard to disclosure of plan and procedures, so modified approach should be followed. This means we should disclose our plan and procedures which direct affects the client's involvement. And we should not disclose our plans and procedures for which we are not directly dependent on client such as performance of analytical procedures, fraud investigation etc.

If we disclose all our plans and procedures then client might take advantage of it and will try to manipulate it. Client will already be aware of our plans and they might mar the quality of data or information. This will increase the chances of risk of material misstatements and have fraudulent financial reporting.

2. As explained above, auditor must decide what is relevant for the client to know and what portion of our plans and procedures is irrelevant for them to be aware of. If we completely do not disclose it then we will end up with not fully completion of our audit procedures.

For example-: At year end, if we will not let to know the client for our year end inventory count Plan and procedures then we will not be able to perform these procedures. In order to perform these procedures, client has to stop their relevant manufacturing process and make arrangement for our logistics. Failure in telling our plan will mar the quality of our audit procedures. So that could have significant effect on our reporting obligation and indeed our audit opinion.