Audit Program

An audit program is a course of action that businesses undertake to comply with regulations.
While the content varies depending on the type of business, the principles are the same.

The goal of the audit program is to devise a guide for the auditor to follow. This guide comes
with predetermined goals.

Objectives of Audit Program

The main objective of an audit program is to prepare a step-by-step guide that is detailed and
practical enough for an external auditor. It’s essentially a detailed checklist that will determine
whether or not a company adheres to certain criteria. The specific evaluation standards depend
on the kind of company and the purpose of the audit. However, the process of creating the
document remains the same.

Once created, this guide instructs the audit team. The personnel involved in auditing use the
guide to coordinate with each other. While in-house auditors often use it, the impersonality of the
document is vital to maintain its usefulness in case there is a change in management. An
objective guide also helps when the task is delegated to someone new.

An audit plan meets the following goals:

• It helps allocate human resources to evaluation. In addition, this program helps in the
division of responsibilities.
• It is used in setting a clear metric of what needs to be done for a successful evaluation.
• An audit program is a roadmap. An auditor can easily check how much work is pending
and how much it is completed.
• It enables the auditor to maintain a record. As a result, the next audit will be easier with
material to compare with.
• The audit plan enhances efficiency, uniformity, and continuity of the process.

Types of Audit Program

Not all audit guides are the same. They vary in flexibility, and they could either be standard
industry programs, specific to one enterprise, or more generalized. Some programs are focused
more on complying with current regulations. Other types are standardized and can be applied to
many firms operating within the same niche.

#1 – Standardized Audit Program

It is the simplest program. Unlike specific versions, the main goal of standardized programs is to
offer a standard reference that will be used in an area. These documents are not devised by a
specific company but often by corporate institutions.
For example, a corporate alliance focused on the fintech industry could release a new audit
program. It would determine what steps are necessary to consider a company fit to operate in this
market.

All other companies similar to this organization could then use it as a guide. Other companies
can either devise their plans or follow the same standards. Companies who choose a customized
and unique program take into account the specificities of their businesses,

#2 – Tailored Audit Program

The tailored program is the opposite of the standardized version. It takes into account the
specificities of the company and builds from there.

Due to the specificity of this type of audit, guides vary from business to business. Unlike its
more neutral counterpart, it is devised by people inside the company, and it takes its goals,
mission, and culture into account. In other words, this program will not be useful if applied
outside the particular firm.

#3 – Compliance Audit Program

Compliance audit plans focus solely on following compliance rules. It’s the kind of program that
will determine all the actions that a third-party auditor will have to follow to determine whether a
business is following the current regulation imposed by the government.

It is one of the most vital plans in highly regulated areas such as finance. If companies fail to
create proper compliance programs, they get fined and face hurdles from the regulatory agencies.

#4 – Fixed or Flexible Audit Program

Audit guides are further classified based on whether they are fixed or flexible. A fixed program
is very rigid and does not allow for changes. It is more common in tailored audits. It looks
specifically into situations that affect the company. There is no need to change such a guide.
Because right from the inception, it is tailored to fit the business.

However, for flexible audit programs, the auditor gets only an outline of the scope and
procedures. In this case, the auditor has more freedom to determine how the work will be done.
Auditors have room to modify parts of the program as they see fit. Such a practice is more
common in standardized audits that need more flexibility. These then can be applied to a wide
range of firms across sectors.
What Are Audit Test of Controls?
An audit test in terms is a set of control procedures or processes carried out by the auditors,
being internal or external, which involves taking a sample of a group of similar transactions to
gauge the accuracy and fairness with which the financial statements of an individual or an
organization.

Audit Test of Controls Explained

Audit test of control is the method of testing whether the financial reporting process is efficient
enough to detect and avert any fraud. This will ensure the shareholders get a true and fair picture
of the company’s financial condition. It is a procedure adopted by an auditor to test a sample of a
similar group of transactions to conclude the fairness with which the transactions are recorded.

The main purpose of internal audit test of controls is to check and verify the level of
effectiveness of controls followed by an organization while recording its financial transactions. It
ensures that it tests and detects any error, omission, or material misstatements in the financial
statements.

Once an auditor carries out test of controls in audit, based on results, he may decide to further
take some samples for testing or rely on clients’ internal controls. However, this audit process is
extremely important fro any organization, to reduce material misstatement risks and misuse of
the same.
Types

Internal audit test of controls involves undertaking tests in five ways to arrive at a wholesome
picture of the effectiveness of internal controls and whether there are any errors, omissions, or
material misstatements while preparing the organization’s financial statements. The list given
below will explain what are test of controls in auditing.

#1 – Risk Assessment

Undertaken to identify and understand risks, the company entails considering the environment
within which it operates.

#2 – Test of Control

It aims to test the effectiveness of internal controls carried out by the company. The auditor
undertakes a detailed examination of controls.

#3 – Substantive Test – Transactions

The main aim of this test is to identify whether any fraud, error, or material misstatement exists
in the organization.

#4 – Substantive Test – Procedures

It is similar to the test discussed above; however, this one aims at evaluating the financial
statements by carrying out a detailed study of the relationship of actually recorded amounts with
the expected. It involves financial as well as non-financial data.

#5 – Test of Balances

It focuses on the end balances of the general ledgers, which are eventually carried forward to the
balance sheet, which is the face of the company financials.

Advantages

• It helps an audit select a few samples from a large group of transactions. Thus, it reduces
the volume of work involved.

• Saves a lot of time;

• Eventually saves the workforce and labor employed.
• Saves on cost on account of lesser time involved and low workforce associated;
• From the auditors’ point of view, it will ensure more clients.
• Improves efficiency, as auditing similar voluminous transactions can be tiring.
 • The testing sample will give comfort about the overall control over systems in an
organization because of proper understanding about what are test of controls in
auditing for the organization.
• Samples are selected randomly, and thus, there is no control by management board of
directors accounting staff, or any other person. Thus they remain alert and careful while
posting financial transactions at each stage.
• It can help the auditor assess the fairness of the preparation of the financial statements.

Disadvantages

• The audit test selects sample transactions for testing, and it is very well possible that any
transaction about fraud may get left out.
• The auditor’s responsibility increases who has to be sure that the sample covers all the
aspects of transactions being carried out by the organization, and should leave no stone
unturned to check on any undetected errors or frauds.
• Audit Testing may work where the volume of transactions is very high. It will make no
sense to follow audit testing from organizations operating on a small scale.
• It is possible that since the management, board, and accounting staff knows’ that audit
shall be done using a sample testing method, they may remain careless in the hopes that
any fraud or error may not get caught by the auditor.
• The auditor may leave complicated transactions out of its sample and only focus on
simpler transactions to ease work.
• Risky in case there are no or weak internal controls.

Audit Test Of Control Vs Substantive Audit Procedure

Audit test of control states whether the internal procedure is strong enough to prevent of
financial misstatement, whereas substantive audit is process where auditors identify financial
misstatements. However, the differences between them are as follows:

Audit test of control Substantive Audit Procedure

It is a test of the controls to prevent
financial misstatement.
It ensures that the financial record keeping
system is effective in preventing fraud.
It is designed to put a strong comtrol
system to prevent fraud.
Control system should be there before
substantive audit.
It is the process of identifying financial
misstatement.
It ensure the company presents a true and fair picture
of the company’s financial condition to
shareholders.
It is designed to make the accounting system
accurate and valid.
Substantive audit is dependent on control system.