Financial audit is the independent inspection of an entity financial information to issue opinion on their truth and fairness. It is independent inspection since someone (auditor) who is not the employee or partner in the entity is required to perform the audit.
Financial audit planning is the process of establishing strategy and detailed audit program which will enable the audit team to perform the audit in efficient and effective manner.
The following are steps which are followed when preparing financial audit plan.
First, the audit team must establish the audit strategy. The audit strategy is the document which establish the scope, direction and nature of the audit. It sets the overall objectives of the audit and the resources and extend the whole audit exercise. The audit strategy contain staff and other resources required to conduct the audit, audit materiality level, initial understanding of the audit client, audit reporting timelines and so forth. The preparation of audit strategy is the building block of next step of preparation of financial audit plan which is preparation of audit plan.
The step which follows after preparation of audit strategy is preparation of the audit plan. The audit plan contains audit programs of auditing specific areas of financial statements. Audit plan sets the timing, nature and extent of audit procedures which will help the audit team to test for misstatements in balances and transaction in the financial statements. Audit plan also help the audit team to allocate the responsibility of audit team member by identifying the person who will be responsible for carrying out audit procedures, who will review the audit working papers and when the audit procedure will be carried out.
After the preparation of audit strategy and audit plan the audit team must review these document to incorporate new knowledge and information which will be obtained during the audit. Therefore, the audit plan and audit strategy are not static documents they must be reviewed throughout the audit to identify areas where improvement must be made.
To sum up, audit planning is very important activity in auditing since it help the audit team to carry out the audit in efficient and effective manner. The steps involved in audit planning are, preparation of audit strategy, preparation of audit plan and review of these documents throughout the audit.