Audit Planning & Supervision: A Comprehensive Guide
1. Audit Planning
Definition
Audit planning is the process of formulating the desired future state for an organization. It involves considering alternative courses of action, evaluating them, and defining appropriate mechanisms to achieve the proposed objectives. Additionally, it includes determining the allocation of human and physical resources for efficient use.
2. Importance of Audit Planning
Adequate planning and monitoring enable auditors to obtain satisfactory results that support their opinion. Auditing standards require technical work to be planned, and proper supervision of assistants ensures quality for users. Planning helps establish the extent and scope of testing, optimize human resource utilization, and allows auditors to:
- Understand the management of the institution under review and identify its problems.
- Familiarize themselves with the physical facilities.
- Gain knowledge of the client’s accounting system, policies, and internal control procedures.
- Establish the expected level of trust in internal control.
- Identify and schedule the nature and timing of audit procedures.
- Coordinate the work to be done.
3. Audit Supervision
Definition
Audit supervision occurs when the auditor, often requiring assistants, oversees their work during the audit process.
4. Importance of Audit Supervision
Proper supervision is crucial because the auditor’s responsibility cannot be delegated. The client who contracted the audit must be assured of quality work. Supervision ensures assistants adhere to audit standards and procedures, leading to reliable and accurate audit results.
5. Stages of Audit Planning
- Investigation of general and particular aspects of the company.
- Survey and evaluation of internal control.
- Detailed work programming.
6. General Research
General research aims to determine the fundamental and specific aspects of the company relevant to the audit work. This involves investigating and explaining matters such as industry regulations, the company’s history, organizational structure, and business operations.
7. Study and Evaluation of Internal Control
Internal control contributes to the security of the accounting system, setting and evaluating administrative and financial procedures, and helping the company fulfill its purpose. It detects errors and irregularities and advocates feasible solutions by evaluating all levels of authority, personnel management, accounting methods, and systems. This allows the auditor to accurately account for transactions and business dealings.
Methods for documenting internal control knowledge include:
- Descriptive method
- Graphic method
- Questionnaire method
8. Work Program
The internal audit work program is a planning document outlining the work to be performed on administrative units and activities likely to be audited. It’s typically designed for a calendar year but can extend to the medium (1-3 years) or long term (over three years). These extensions accommodate changes in administrative requirements and priorities, policies, regulations, and business processes.
9. Importance of Audit Supervision
Supervision is essential because the auditor needs to ensure the quality of work performed by assistants. By monitoring their work, the auditor can maintain high standards and correct any deficiencies, ultimately leading to a reliable and accurate audit.
10. Working Papers
Definition
Working papers are all the cards and documents prepared or obtained by the auditor during each stage of the review. They serve as evidence of tests, inspections, verifications, interpretations, etc., supporting the auditor’s opinions and judgments on the examined information system. They act as a link between the company’s accounting records and the auditor’s reports.
11. Importance of Working Papers
Working papers provide evidence of the audit procedures performed, supporting the auditor’s conclusions and opinions. They serve as a record of the audit process, facilitating review and quality control. They also aid in planning future audits and demonstrate compliance with auditing standards.
12. Planning of Working Papers
Planning working papers involves determining in advance each document to be used during the audit. This allows the auditor to begin work efficiently, having predetermined all important details and procedures. Planning starts with determining the audit approach and utilizing worksheets with data from general ledgers and the prior year. Based on these worksheets, summary schedules are defined, indexed, and filled with relevant data. Analytical schedules are planned based on the summary schedules and are similarly indexed and filled.
13. Objectives of Planning Working Papers
The primary objective of planning working papers is to determine all the documents needed for the audit. This ensures that the auditor has the necessary tools to perform the audit efficiently and effectively.
14. Ownership of Working Papers
Working papers are owned by the auditor or certified public accountant.
15. Responsibility for Working Papers
The person who holds the working papers (the auditor or certified public accountant) is responsible for their safekeeping and confidentiality.
16. Elements of Working Papers
Working papers should contain the following elements:
- Header
- References
- Date and identification of preparer and supervisor
- Reference to the Work Program section
- Analysis performed
- Scope of work
- Sampling method
- Source of information
- Explanation of audit marks used
- Conclusions
- Documentation prepared or provided by the entity
17. Classification of Working Papers
Working papers are classified as:
- Continuous use
- Temporary use
18. Working Papers of Continuous Use
These papers are used continuously and are useful for checking accounts not only in the current period but also in future years. Their data usually refers to the past, present, and future. They are considered an integral part of all working papers related to the data they contain, also known as the permanent file. Permanent file content can include:
- Company history
- Contracts and long-term agreements
- System and accounting policies
- Financial statements of recent years
- Tax information
- Conclusions and recommendations from recent audits
- Worksheets from the last audit
19. Working Papers for Temporary Use
These papers have limited use for a single audit and are prepared during the course of the audit. Their benefit or utility only covers the accounts, date, or period in question. The contents can include:
- Financial statements for the current and preceding periods
- Worksheets of the financial statements under review
- Summary schedules of financial statement items
- Analytical sub-schedules and analytical summaries
- Confirmation results
- Analysis of audit tests performed
- Documents prepared by the client and used in the audit
20. Audit Worksheet
Multi-columnar worksheets list groups of accounts with significant balances subject to review. They provide an overview and serve as a guide or index for other schedules related to each account. These papers represent the overall financial statements and initiate the analytical technique by decomposing the whole into smaller units of study using the deductive method. The list can be a simple trial balance or follow the order of the balance sheet and income statement.
21. Descriptive Summary Schedule
These schedules contain the initial analysis of data related to a row in the worksheets and link it to the analytical or testing schedules. They provide a summary of the account balance and related information, facilitating further analysis.
22. Analytical or Testing Schedule
These schedules detail the items in the summary schedules and contain the analysis and verification of their details. They indicate the specific data items or tests and procedures used to obtain sufficient competent evidence. They provide a detailed analysis of the account balance and related transactions.
23. Indexing
Indexing is a system used by auditors to sort and file working papers for easy retrieval. A key is typically used to identify each document and its location within the file. This ensures that working papers are organized and easily accessible.
24. Audit Marks
Audit marks are special symbols created by the auditor with specific meanings. They are used to annotate working papers and indicate the procedures performed, the results obtained, and any issues identified.
25. Advantages of Indexing
Indexing facilitates the sorting, filing, and quick retrieval of working papers. A key, usually written with a crayon called a “pencil audit,” is placed on each document to indicate its index number and location within the file. This system ensures that working papers are organized and easily accessible.
Advantages include:
- Diversification: Allows for the organization of working papers by various criteria, such as account, audit area, or date.
- Systematization: Provides a consistent and standardized approach to organizing and indexing working papers.
26. Advantages of Audit Tick Marks
Audit tick marks facilitate the verification of facts, techniques, and procedures used in schedules or forms, saving space and time. They are special symbols created by the auditor with specific meanings, providing a concise way to document audit procedures and findings.
27. Sample Index Systems
- Numerical index alphabetically
- Double alphabetical index
- Double numerical alphabetical index
- Numerical index
- Decimal index
28. Examples of Audit Marks
- ¥ ¥ confronted with books
- § § matched with document
- ? correction made?
- ¢ ¢ comparative auxiliary
- ¶ ¶ joined vertically
29. Ordering of Working Papers
Working papers should be ordered logically and flexibly to ensure easy retrieval by anyone. This may involve organizing them by account, audit area, or date, depending on the specific needs of the audit.
30. Filing of Working Papers
Continuous audit file working papers are sorted and filed by groups or concepts based on the data or information they contain. The necessary groups will be maintained to ensure that working papers are organized and easily accessible for future audits.