Audit Programme

SA 300 Planning an audit of financial statements

”A detailed plan of auditing work to be
performed, specifying the procedures to
be followed in verification of each item in
the financial statements and giving the
estimated time required’’

Audit Programme
 An audit program provides a basic plan for the
audit team regarding the entity’s business, its size,
how to conduct the audit, allocation of work
among team members and the estimation of time
within which it should complete the work.
 It contains details regarding the relevancy of
evidence, materiality level, risk tolerance, measure
of the sufficiency of the evidence. Thus, programs
enhance the accountability of the audit team and
its members for the work performed by them.

Audit Programme
a set of instructions which are to be followed by
the auditor for the proper execution of an audit.
It would contain the various steps and
procedures that would be required for the audit
process.
It would also carry the measures which are
typically employed to determine what, and how
much evidence must be gathered and
evaluated.
The responsibilities of the entire audit team
would be laid down in the Audit Programme in
order to carry out different tasks
Audit Programme
 The following should be evaluated before the
formulation of an audit programme.
 The Appointment Letter and the appropriate resolution
for the appointment.
 The terms of the operation which includes the reports
required and the manner of determining the audit fee.
 The system of bookkeeping and the list of the books of
account as maintained by the entity.
 The particulars of the Directors, Promoters and their
powers.
 Names of the individuals who maintain the books of
accounts and other authorised individuals.

Inclusions in an Audit Programme

 The Memorandum of Association, Articles of Association and
Partnership Deed as applicable.
 Details of the business of the client and its accounting systems by
assessing and reviewing the information on the following:
◦ Nature of business of the entity
◦ Internal Control System as well as the Manager controls
 The statement of profit and loss account, balance sheets,
auditors’ and directors’ reports of the prior year and the reports
of the internal auditor.
 Analytical review procedures to:
◦ Identify the areas of accounts which are essential due to their size.
◦ Highlight the unusual figures or relationships in the accounts.
◦ Design audit test that focuses on critical and unusual items.
◦ Obtain sufficient audit assurance to permit the reduction or maybe, the
elimination of thorough testing in certain areas.

Inclusions in an Audit Programme

The assessment of audit risk by using
professional judgement and the audit
procedures to make sure that it is
decreased to an acceptable low level.
The preliminary estimates of materiality for
the audit as a whole.
The class of accounting transactions that
are relevant and to make a decision on the
type of testing and samples.
Selection of representative samples.

Inclusions in an Audit Programme

Test of compliance in order to evaluate
the reliability of critical controls.
Material weaknesses in the operation of
the critical controls of management.
The performance of the analytical review
procedures, substantive tests of details to
attain sufficient, reliable and relevant
audit evidence for each audit goal.
Fundamental accounting assumptions

Inclusions in an Audit Programme

Inclusions in an Audit Programme
 Disclosure of the change in an accounting policy that
would have a material effect.
 The audit report from all the Branch Auditors and any
reservation made by a branch auditor which is
appropriately dealt with in the finalization of accounts.
 The Working Papers that contain all the audit evidence
and are cross-referenced.
 Summary of the work done, issues, significant
judgments and audit conclusions.
 Review by a senior in charge of all the work done by
assistants, audit programme followed and the work
performed as per the schedule.
 Updation of the audit working papers along with the
permanent records as well.
 Review of the unadjusted errors in order to determine
if the individual and aggregate effect is material.
 Compliance with the legal and regulatory
requirements and with all mandatory accounting
standards as issued by the Institute.
 Post balance sheet events
 Formulation of the draft audit opinion.
 Comparison of the budgeted time to actual time and
the reasons for significant differences.
 The evaluation forms of the complete staff.
 Planning of the next year’s audit

Inclusions in an Audit Programme

 helps to ensure that all the critical areas are covered during the
audit appropriately.
 It helps to distribute work among the members of the audit team
and assistants as per their level of competence and experience.
 gives instructions to the audit team and decreases the scope for
misunderstanding.
 It helps to fix the responsibility for the work done amongst the audit
team as the work done can be traced back to the individual in the
auditing staff.
 It helps to assess the progress of work by ascertaining the part of
the audit work that has been completed against how much is left in
order to complete the audit successfully.
 serves as an evidence against a charge of negligence.
 serves as an audit record that may come into use for future
references once the audit is completed successfully.

Advantages of Audit Programme

 Rigidity: An audit programme does not possess the
advantage of being flexible as the same programme cannot
be used for different types of organizations. Every business or
entity has the separate and unique issues that they face.
Therefore, a single or same audit programme cannot be laid
down for every type of business.
 Decreases the Initiative of Efficient Staff: An audit
programme does nothing to promote the initiative of capable
individuals. Assistants and team members would not be able
to suggest any improvement in the set plan.
 Mechanical Audit Work
 Overlooking New Areas: As time passes, new problems or
issues may arise during the audit, and they may be
overlooked in the Audit Programme.

Demerit
SA 315 Identifying and assessing the
risk of material misstatements through
understanding the entity and its
Environment

Internal Control System

i) The process designed, implemented and
maintained by those charged with
governance , management and other
personnel
ii) To provide reasonable assurance about
the achievement of an entity’s objectives
in the following categories;
a) Reliability of financial reporting
b) Effectiveness and efficiency of operations
c) Safeguarding of assets and
d) Compliance with applicable laws and regulations

Definition of Internal Control System

Itis responsibility of those charged with
Governance and management to lay down
an internal control system
The Controls generally most relevant to
audits are those that pertain to the entity’s
objective of preparing financial statements
to give true and fair view of the state of
affairs and profit of the business
Controls over operations and compliance
objective
Controls to safeguards assets

Features
 Potentials of human error

Breakdown

Possibility of collusion

manipulation by management

Management Discretion

Inherent limitations of ICS( SA

315)
 Informatio
Risk Control Control
n and Supervisio
Assessme Environm procedure
Communi n
nt ent s
cation

Components of ICS
SA 315 Identifying and assessing the risk of
material misstatements through understanding the
entity and its Environment

Internal Control system and the

Auditor
Adopt risk assessment procedures
• Enquiries of Management
• Observation and inspection
• Assess the relevance of information obtained in prior periods
• Holds discussions among the engagement team

Evaluate the design of the Controls

Study major components of ICS

Identify and assess the risks of material misstatement

Revise the risk assessment

Internal Control system and the

Auditor
Valuable part of Internal Control
It is built-in check in Accounting process
itself

Internal Check
 • “A system of
allocation of
responsibility ,
division of Work and
Paragraph 8.05 of the method of recording
Guidance Note on transactions ,
Terms used in whereby the work of
financial Statements an employee or
by ICAI ground of
employment is
checked continuously
by correlating it with
the Work of others.”

Definition of Internal Check

An essential features is that no one
employees or group of employees has
exclusive control over any transaction or
group of transactions.
Arrangement of duties of staff in such a
manner, that the work of one person is
automatically checked by another during
the course of carrying out , recording and
processing a transaction
 Segregation of duties

Automatic checking of work

Division and rotation of work

Recording of different aspects of transaction

Separation of custodial and recording functions

Periodical Review

Objectives
 Fixation of responsibility

Increases efficiency of clerk

Prevention of errors and frauds

Reliability of Information

Reduces the workload of Auditor

Increases the profitability of the business

Advantages
 Expensive

Carelessness of employees

Does not reduce the risk of the Auditor

Disadvantages