Audit planning: Be prepared
As a follow-up to his article on audit completion, Steve Collings turns his attention to planning - one of the most crucial elements of the audit process.
Audit planning is one of the most crucial aspects of an audit because without undertaking a sufficient programme of planning, the auditor risks going in blind, which in turn increases audit risk - that being the risk of forming an incorrect opinion on the financial statements.
The UK and Ireland international audit standards (ISAs) are vast - you’ll find them in the 300 series: ISAs 300, 315, 320 and 330 - so this article cannot go into every matter an auditor must consider.
The full version of this article, visible to registered AccountingWEB.co.uk members, covers the main requirements in more detail:
- Preliminary engagement activities
- Audit strategy and audit plan
- Direction, supervision and review
- Identifying the risks of material misstatement
- Risk assessment
- Relying on tests of control from the previous audit
There are many areas in audit planning that lend themselves to misunderstanding and misinterpretation. In some cases audit firms have been criticised for the sheer lack of planning documentation on file, from which inspectors can only conclude that the amount of documentation on file reflects the actual amount of planning work that has been done. Modern auditing software usually provides a comprehensive planning memorandum and outlines the information that should be included in the planning section of the current audit file, but the most crucial point to bear in mind is to make sure the crucial planning points are fully documented.
Steve Collings is the audit and technical partner at Leavitt Walmsley Associates and the author of ‘Interpretation and Application of International Standards on Auditing’. He is also the author of ‘The AccountingWEB Guide to IFRS’ and ‘IFRS For Dummies’ and was named Accounting Technician of the Year at the 2011 British Accountancy Awards.