Why should an auditor design the written audit program?

An auditor should design the written audit plan so that:
A. All material transactions will be selected for substantive testing.
B. Substantive tests prior to the balance sheet date will be minimized.
C. The audit procedures selected will achieve specific audit objectives.
D. Each account balance will be tested under either tests of controls or tests of transactions.

Correct Answer: C
Explanation/Reference:
Choice "c" is correct. An audit plan aids in instructing assistants in the work to be done. It should set forth in reasonable detail the audit procedures that the auditor believes are necessary to accomplish the objectives of the audit. Choice "a" is incorrect. Auditors make extensive use of sampling to perform audit tests.
Tests of all material transactions would not be economically feasible.
Choice "b" is incorrect. Assuming that incremental risk can be controlled, substantive tests can be performed prior to year-end.
Choice "d" is incorrect. An account balance does not necessarily have to have tests of controls or tests of transactions applied to it.

Download Printable PDF. VALID exam to help you PASS.

An audit plan refers to the design of an audit describing the overall audit strategy and guidelines to follow while performing the audit. It helps in the successful completion of the audit process.

Planning for auditing is the initial step in an audit. It helps the auditor efficiently manage the audit by analyzing the prime focus areas, proactive problem management, and allocating responsibilities to team members.

Table of contents

Key Takeaways

• An audit plan represents a blueprint for conducting an audit. It addresses why, when, how, where, and by whom questions associated with audit performance.
• A good audit design identifies all the risks involved in the operations and employs specific audit procedures to minimize them.
• Successful planning for audit necessitates the cooperation of the management. Auditor has the authority to question the concerned personnel in case of any discrepancies.
• Auditors follow more or less the same procedure for auditing most of the companies by adhering to the standard auditing procedures.

Audit Plan Process

According to the international standard of auditing (ISA), an audit plan should be based on an overall audit strategy. The audit strategy must explain the scope, timing, and direction of the audit. In addition, strategy formulation depends on the features of audit engagement like its characteristics, reporting objectives, auditor’s professional judgment, the outcome of preliminary engagement activities, and the resources necessary to perform the audit engagement.

According to ISA, in addition to client information, audit planning steps should contain the description for nature, timing, and extent of:

• Planned risk assessment procedures
• Programmed further audit procedures at the assertion level
• Other programmed audit procedures that are required to accomplish so that the engagement complies with professional standards

You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Audit Plan (wallstreetmojo.com)

The auditorAuditorAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more can update the audit design according to the development during the audit. Moreover, the auditor also includes supervising and reviewing team members’ work in the plan. The resulting documentation primarily contains the overall strategy and plan. In addition, it may consist of the changes applied to the overall strategy and audit plan processes during its implementation and the reason for changes.

Sample Audit Plan 

Let’s look at the sample below to understand better the structure, layout, contents, and overall audit plan template.

To comprehend each business element relevant to the audit, the auditors collect and evaluate information about the company, such as financial, legal, and investment facts. In addition, they utilize risk assessment techniques to analyze the risks of anomalies in business governance, notably financial statement misstatements.

The audit team utilizes audit techniques to collect audit evidenceAudit EvidenceAudit evidence is information gathered by auditors during the course of an audit, whether internal, statutory, or otherwise. These facts serve as the foundation for the opinion in the audit report.read more once the risks have been recognized. This audit evidence assists them in forming a judgment on the company’s financial statementsCompany's Financial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. Audit techniques often employed by auditors include analytical procedures, investigation, examination of records and assets, observation, reconciliationReconciliationReconciliation is the process of comparing account balances to identify any financial inconsistencies, discrepancies, omissions, or even fraud. At the end of any accounting period, reconciliation involves matching balances and ensuring that debits (credits) from one account for one transaction is same as the credit (debits) to another account for the same transaction.read more, and reperformance. The auditor’s assessment of the risks influences the audit method’s nature, timing, and scope.

Furthermore, the knowledge and experience of the auditors will undoubtedly reflect in the conversations throughout the work plan development. This knowledge transfer method guides audit engagement teams throughout different processes such as information evaluation and risk identification.

Audit Plan Example 

Having a punctiliously crafted audit design helps auditors achieve efficient engagement, risk mitigation, and compliance with standards set by authorized governing bodies. In addition, the company being audited should be ready and offer coordination to assist in the efficient completion of the audit. Let us look into the significance of a well-informed design with the help of an audit plan example.

During one of their client’s previous year audits, the auditor of a CPA firm reported the deficiency in internal controlInternal ControlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more when he found out the existence of fictitious vendorVendorA vendor refers to an individual or an entity that sells products and services to businesses or consumers. It receives payments in exchange for making items available to end-users. They constitute an integral part of the supply chain management for providing raw materials to manufacturers and finished goods to customers.read more invoices related to inventory. The auditor painstakingly considers the issue in the current year by addressing it in the risk assessment or designed audit proceduresAudit ProceduresAudit Procedures are steps performed by auditors to get evidence regarding the quality of the financial information provided by the management of a company. It enables them to form an opinion on financial statements and ensure whether they reflect the true and fair view or not. read more to ensure that the management rectified the problem. The auditor plans to assess the risk of inventory fraud with the help of observation of physical inventory and analytical procedures and describes its nature, time, and extent. Hence, what is more important is the treatment of planning as a continuous process commencing from the end of the previous year audit and comes to an end with current audit engagement completion.

Frequently Asked Questions (FAQs)

How do I write an audit plan?

The vital thing is to develop an overall audit strategy. The plan should be in line with the audit strategy so that the plan entails the successful completion of the audit objectives. Generally, the audit design must encompass the nature, timing, and extent of risk assessment procedures, further audit procedures at the assertion level, and other planned audit procedures to complete the process while ensuring professional standards.

What are the stages of audit planning?

The two elements of planning are creating an overall audit strategy and the associated plan. Following different activities like collecting client requirements and information and verifying the applicable laws is vital in preparing an audit strategy. It should align with audit objectives and contribute to the act of curating an audit work plan.

What is audit plan and program?

An audit design contains a list of guidelines for auditors to follow while conducting an audit. In contrast, an audit program is the description of detailed steps to complete the audit procedure. Both deeds give direction to auditors and other team members while auditing.

Recommended Articles

This has been a guide to Audit Plan and its Meaning. Here we discuss its process and sample along with their examples. You may also have a look at the following articles to learn more –

What is the purpose of designing audit programs?

Why is audit program necessary?

Who is the audit program designed for?

What are the 3 reasons an audit should be properly planned?