Audit planning is the process which involve establishing the audit strategy and audit plan. audit strategy is the document which contain direction, timing and scope of overall audit while audit plan is document which contain nature , timing and extent of audit procedures.
Audit planning is a vital area of the audit primarily conducted at the beginning of audit process to ensure that appropriate attention is devoted to important areas, potential problems are promptly identified, work is completed expeditiously and work is properly coordinated.
To make sure that audit is conducted in effective and efficient manner, which is ultimate goal of audit planning, the following issues should be taken into account when planning the audit.
The audit files for the previous year should be examined in detail and any important matters should be considered for the current year’s audit.
The management of the company should be consulted in advance and the timing of the audit should be agreed. For example, the timing of the stock take.
The management accounts for the year should be obtained from the company. These should be examined to gain information about the trading performance of the company, perhaps in comparison with any budget which is available and significant changes noted.
Stock taking procedures should be reviewed in detail. In addition, it would be useful to obtain the results of any stock counts during the year, to consider whether problems still exist in the comparison between book and actual stock levels.
In the light of the known liquidity problems of the company, it would be prudent to obtain any forecasts and budgets for the following year or years. This may be useful in performing any pot balance sheet review i.e. period between the end of the audit and the date the directors plan to sign the accounts.
The Internal Auditors may be of use in the performance of the external audit. Their work should be examined to determine whether it is reliable and relevant and some of the tests they have performed should be re-performed for this purpose.
Determination of which audit staff are to be used for the audit. The staff chosen should be dully qualified and experienced. The number of staff should also be determined depending on the size of the company to be audited.
A time table should be prepared for the audit, including the items for the principal phases of the audit, the date the audit report will be signed and an estimate of fees, costs and profit.