Question

(a) Planning is an essential part of the audit. Identify and explain FIVE reasons why audit planning is necessary.
(b) Define analytical procedures and explain how they should be used at the planning stage of the audit.

Answer 1

Answer..

(A) Planing is essential part of an Audit, Because Audit planning is very necessary to conduct an effective audit in an efficient and timely manner.

IAS 300 “Planning an Audit of Financial Statements” deals with the auditor's responsibility to plan an audit of financial statement.

Importance of planning: Reasons why audit plan is necessary

(i) To ensure that appropriate attention is devoted to important areas of audit: This is done through written audit plan. In which the objectives and the procedures are written which are followed through out the audit procedure.

(ii) To facilitate review All the work of the audit should be delegated to staff with the appropriate level of experience.And work should be supervised by senior members of staff.

(iii) To ensure that potential problems are identified The Auditor should ensure that resources are allocated to material areas

(iv) To assist in the proper assignment of work From the audit planning it helps the audit to proceeds in a timely and efficient manner.

(v) Coordination of work done by auditors of components and experts.

(b) Analytical Procedure International Standard on Auditing (ISA) 520, “Analytical Procedures” deals with the auditor's use of analytical procedure as Substantive Procedure.

Analytical procedure means evaluation of financial information through analyse the relationship between financial and non financial information.

Uses of Analytical Procedure in audit Planning.  

With the help of the analytical procedure auditor decide the nature,Time, and extend of audit procedure.

When financial and non financial informtion are comapare and the auditor find any mismatch then auditor enhance the timing of the audit procedure.

Here non financial data means no. of employees, volume of goods produced, and similar information.

Analytical procedures used in planning the audit generally use data aggregated at a high level. Furthermore, the  extent and timing of the procedures, which are based on the auditor's judgment are  depending on the size and complexity of the client.