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THE TAMIL NADU Dr. AMBEDKAR LAW UNIVERSITY

SCHOOL OF EXCELLENCE IN LAW

PERUNGUDI CAMPUS, PERUNGUDI

CHENNAI – 600113

B.COM LLB (Hons.) – (V Semester)

PRACTICAL AUDITING

Module - II

AUDIT PLANNING AND PROGRAMME

By

Dr. S. THIRUMAL, M.Com., M.Phil., MBA., PGDCA., Ph.D,

Assistant Professor of Commerce

School of Excellence in Law

The Tamil Nadu Dr. Ambedkar Law University

Chennai – 600113

Mobile: 9443978290

Email: drthirumal20@gmail.com
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AUDIT PLANNING

Audit planning includes deciding on the overall audit strategy and developing an audit
plan. It enables an auditor to cover different aspects of audit work in a systematic and methodical
manner. Audit planing enhances the quality of audit work.

Audit plans should be based on the knowledge of client’s business. The auditor should so
plan his/her work that audit may be conducted in an effective and efficient manner.

STEPS IN PLANNING

1. Basic discussions with the client about the nature of the engagement and the client's
business and industry are performed first, and the auditor meets the key employees, or
new employees of a continuing client.
2. The overall audit strategy or the timing of the audit may be discussed, but don't discuss
specific audit procedures.
3. Review of audit documentation from previous audits performed by the accounting firm.
4. Ask about recent developments in the company such as mergers and new product lines
which will cause the audit to differ from earlier years.
5. Staffing for the audit should be determined and a meeting held to discuss the
engagement.
6. Interim financial statements are analyzed to identify accounts and transactions that differ
from expectations.
7. The performance of such analytical procedures is mandatory in the planning of an audit
to identify accounts that may be misstated and that deserve special emphasis in the audit
program.
8. Non-audit personnel of the accounting firm who have provided services (such as tax
preparation) to the client should be identified and consulted to learn more about the
client.
9. Timing of the various audit procedures should be determined.
10. Outside assistance needs should be determined, including the use of a specialist as
required (a tax practitioner or IT professional) and the determination of the extent of
involvement of the internal auditors of the client.
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11. Pronouncements on accounting principles and audit guides should be read or reviewed to
assist in the development of complete audit programs fitting the unique needs of client's
business and industry.
12. Scheduling with the client is needed to coordinate activities.

ADVANTAGES OF AUDIT PLANNING

i. Accomplishment of Objectives: Audit plan ensures that it provides right means to

accomplish audit objectives. Further it also ensures that appropriate attention is devoted
to important areas of audit.

ii. Identification of Problems: A well drawn and established audit plan helps in identifying
potential problems.

iii. Assess the Risk: What is the range of your audit system? Your planning needs to grab all
the areas that need to be inspect to ensure a comprehensive approach. What are the
high-priority risks because they are particularly severe or occur more frequently?
Review the previous year's audits to identify new risks that have arisen since the last
audit.

iv. Determine Audit Approach. This will depend on how the audit is managed (using
software or manual processes, or both), how the risks identified in Step 2 are
categorized, and the resources available.

v. Timely Completion of Work: It ensures that work is completed properly within the
specified time and no important area is left out. It also ensures that all important areas
of management receive attention.

vi. Facilitates Coordination: It facilitates coordination of the audit work done by auditors
and other experts.

vii. Better Audit Work: It helps in improving the quality of audit work and provides
promptness and perfection in audit performance.
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AUDIT PROGRAMME:

An audit programme is a detailed, written statement designed by the auditor indicating

the work to be performed by the audit assistants, specifying the time limit for completion of
work, instructions and guidance to the audit staff. In short, it is a tool for planning, directing and
controlling the audit work.

An audit programme is a detailed plan of the auditing work to be performed. It specifies

the procedures to be followed in the conduct of audit more efficiently. The auditor outlines the
whole procedure of audit from beginning till the finalization of audit report. Audit programme is
generally contained in the audit notebook.

It is a set of directions that the auditor and its team members need to follow for the proper
execution of the audit.

Definition

Prof. Meigs defines an audit programme as, “an audit programme is a detailed plan of the
auditing work to be performed, specifying the procedures to be followed in verification of each
item and the financial statements and giving the estimated time required.”

CONTENTS OF THE AUDIT PROGRAMME

❖ Name of the client.

❖ Nature of operations and business of client.

❖ Review of system of internal check.

❖ Date of commencement of audit work.

❖ Duration of audit work.

❖ Accounting system followed in client organization.

❖ Review the report of the previous auditor.

❖ Review the remarks, instructions or objections raised in the previous audit report.
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❖ Examine the various ledger accounts and subsidiary books.

OBJECTS OF AUDIT PROGRAMME:

1. To obtain information regarding the accounting system, policies and control techniques
of the client.
2. To ascertain the extent to which internal control techniques can be banked upon.
3. To lay down the nature, time and extent of audit techniques to be adopted.
4. To co-ordinate the total works.

CHARACTERISTICS OF GOOD AUDIT PROGRAMME

1. Explicit and clarity of expression.

2. Segmentation of work in the light of different aspects of accounting.
3. Logical flow of accounting documents.
4. Elasticity
5. Review of work
6. According to scope of audit
7. Based on evidences
8. Record of movements and accomplishments.

TYPES OF AUDIT PROGRAMME

a. Financial Audits

These audits focus on an organisation's financial statements and records and are typically
conducted by external auditors. The purpose of a financial audit is to provide assurance that an
organization's financial statements are accurate and reliable.

b. Operational Audits

These audits focus on the efficiency and effectiveness of an organisation's operations and
processes. They may be conducted by internal or external auditors.
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c. Compliance Audits

These audits are designed to ensure that an organisation is complying with relevant laws,
regulations, and standards. They may be conducted by internal or external auditors.

d. IT Audits

These audits focus on an organisation's information technology systems and controls.

They may be conducted by internal or external auditors.

e. Environmental Audits

These audits evaluate an organisation's environmental performance and compliance with

environmental regulations. They may be conducted by internal or external auditors.

f. Quality Audits

These audits evaluate an organisation's quality management system and assess whether it
meets relevant standards and requirements. They may be conducted by internal or external
auditors.

MERITS OF AUDIT PROGRAMME

a. Helps in Estimation and Division of Work: Audit Programme helps in estimating the
quantum of audit work in advance and also helps in dividing the work among the audit
assistants based on their capabilities.

b. Helps in Fixation of Responsibility: It enables to fix responsibility on the audit

assistants by clearly defining the scope of work.

c. Helps in Future Planning: Audit programme serves as a basis for planning the audit
work for subsequent year.

d. Serves as a Guide: It serves as a valuable guide for the audit staff in execution of the
audit work for succeeding years.
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e. Valuable Evidence: It serves as an evidence for the work done as initials of those who
have done the particular work are appended to it. The auditor can produce the audit
programme as a proof when a charge of negligence being brought upon him.

f. Uniformity: It provides for uniformity in audit work as the same work will be done
every year.

g. Continuity: When an audit staff goes on leave others can continue the work by referring
to the audit programme, hence, audit programme provides for continuity of work.

DEMERITS OF AUDIT PROGRAMME

a. Makes the work almost mechanical - sometimes the work is done without understanding
the objectives behind it.

b. Gives rigidity of approach - the required flexibility to devote additional attention to some
critical areas becomes difficult.

c. Discourages personal initiatives or efficiency on matters which demand some, more time
or energy.

d. Disclose to the company's staff the tests being performed and the part of the work which
has already been completed.

AUDIT NOTE BOOK

The audit note book contains information regarding day-to-day work performed by
the audit staff on any particular date. Notes about all types of errors, difficulties and non cleared
queries or points to be discussed with the auditor or clients and the points which are to be
incorporate in the report are noted down.

CONTENTS OF AUDIT NOTEBOOK

1. Nature of Business: The audit notebook contains information about nature of the business.
It may relate to manufacturing, trading, financial or service. The auditor states the exact
nature of work being done.
2. Accounts Books: The audit notebook contains the details of accounting books.
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3. Business Documents: The audit notebook provides details about important business
documents. The partnership deed, MOA, and AOA are documents, which show insight into
the business.
4. Officers’ Duties: The audit notebook provides the name officers working in the business.
The responsibility is noted to check the performance of all officers.
5. Client Address: The audit notebook shows the name and address of his client. He may be a
sole trader, partnership firm, and a limited company.
6. Audit Year: The audit notebook can disclose the year of an audit of accounting books and
other records. When the audit is for a special period it may be less than one year.
7. Accounting System: The audit notebook shows the system of accounting being followed in
preparing the financial statements and other records. The effective system provides
feedback for checking the books of accounts.
8. Accounting Policies: The audit notebook provides information about accounting policies
being used by the accounting staff. The principle of consistency help to follow the same
policies from year to year and change can be disclosed.
9. Internal Check System: The audit notebook can provide an idea about internal check
system. If it is effective the auditor can apply test need of thorough checking.
10. Audit Programme: The audit notebook keeps details of audit programme, which is being
followed for completion of audit works. This programme distributes the work among the
audit staff with reference to timing and Instructions.
11. Queries: The audit notebook provides details about the queries made by the audit staff. The
unanswered queries are recorded in their book for completing the report. The management
may fail to answer properly to the questions raised.
12. Errors Discovered: The audit notebook provides information about the errors discovered
during audit work. The management may rectify the mistakes to show time to time and fair
view.
13. Legal Requirement: The audit, notebook shows that management has followed the legal
requirements for doing business. It may relate to books of accounts, labor laws, tax laws
and similar other formalities.
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14. Extracts: The audit notebook can disclose the extracts taken from contracts, agreements,
minutes and other records. These extracts help the auditor to report on the financial matters
of business
15. Weak Points: The audit notebook contains information about the weak points.
16. Clarification: The audit notebook has a record of clarification obtained from management
on various points.
17. Audit Timing: The audit notebook can show date and time of an audit. The date can be
fixed with the customer after mutual understanding, The date and time can show the
progress of work done by audit staff.
18. Business Matters: The audit notebook can provide facts and figures about all business
matters. A business concern can perform many functions.
19. Information: The audit notebook can help important information about accounting books
and records. The page numbers of accounting journals and ledgers are recorded moreover
the serial number of vouchers examined are also stated.

OBJECTIVES OF AUDIT NOTE BOOK:

1. To know about the nature of business. Detection and prevention of frauds and errors
effectively.
2. To make the future audit work easier.
3. To know the facts where clarification and explanation are essential.
4. 4. To check the list of debtors and creditors.
5. 5. To present as a proof by the auditor to clearance over the cases.

USES OF AUDIT NOTE BOOK

1. Audit Report: The audit notebook is helpful to prepare audit report. The auditor can
record the weakness of accounting records. The queries not properly answered are started
in the audit report when the auditor is satisfied he can submit a clear report.
2. Staff Honesty: The audit notebook is used to determine the integrity and honesty of audit
clerks. The moral and ethical value can be examined through audit work. When a person
completes his work in time.
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3. Helpful for Memory: The audit notebook is help to keep things fresh in memory. The
auditor can read the book on daily basis. He can note the weakness on fingertips. He can
ask the management to clear the doubtful points before preparing audit report.
4. Reference: The audit notebook is useful for reference. In future it can provide
information to the audit staff. The past data gives an insight into business matters. The
auditor can note the changes.
5. New Auditor: The audit notebook is useful for new auditor. They can see the weakness
of previous years. The old weak points may not be repeated this year.
6. Court Cases: The audit notebook is helpful to defend an auditor in court cases. The
people can go to court of law in order to fix liability for negligence of duty. The audit
notebook is a written proof of work performed by an auditor.

AUDIT WORKING PAPERS:

Meaning

Audit working papers are the documents which contain essential facts about accounts
which are under audit. It used to support the audit work done in order to provide the assurance
that the audit was performed in accordance with the relevant auditing standards. The working
papers usually consist of draft copies of trial balance, adjusting entries, account analysis,
schedule of debtors and creditors, reconciliation statements, certificates, copies of
correspondence between auditors and debtors, creditors , bankers, etc.,

Audit working paper schedules of special items like depreciation and inventories,
previous audit reports, important queries and their explanation, etc.audit working papers are
necessary for audit quality control purposes. And it also increases the economy, efficiency, and
effectiveness of the audit.

The material that the auditors prepare or obtain and retain in connection with the
performance of the audit. It may in the form of data stored on paper, film, electronic media, or
other media.
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Definition

According to the institute of chartered accountants of India” an auditor is expected to

maintain evidence of work done by him and his staff”.

IMPORTANCE OF AUDIT WORKING PAPERS:

a. Necessary for audit quality control purposes.

b. Provide assurance that the work delegated by the audit partner has been properly
completed.
c. Provide evidence that an effective audit has been carried out.
d. They provide the required support for the auditor’s report.
e. They also reveal the efficiency with which the audit work was done.
f. They can be used as evidence in the court to defend himself against negligence in his duty.
g. They help the auditor to understand the efficiency of the accounting system, internal
check system etc.
h. Increase the economy, efficiency, and effectiveness of the audit.
i. Contain sufficiently detailed and Up-to-date facts which justify the reasonableness of the
auditor‘s conclusions.
j. Retain a record of matters of continuing significance to future audits.

OWNERSHIP AND CUSTODY OF WORKING PAPERS

a. The working papers are the matters documented by the auditor. So they are his property.
Although, the client may claim them as a record of his business matters, the auditor cannot
part with them as his conclusions are based on them and as they provide evidence of the
audit work carried out according to the basic principles.
b. Those papers which contain essential facts about accounts so that the auditor may not
have again to go over the accounts of his clients in case he wants to refer to them later on
during the course of his audit.
c. Working papers belong to the auditor. The auditor’s ownership rights, however, are
subject to constraints imposed by the auditor’s own profession.
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d. Custody of the working papers rests with the auditor and h/she is responsible for their
safekeeping.
e. Working papers include in the permanent file are retained indefinitely. Current working
papers should be retained for as long as they are useful to the auditor in servicing a client
or are needed to satisfy legal requirements for record retention.
MERITS OF AUDIT WORKING PAPER
a. They provide essential support and evidence to the auditor’s opinion that the audit is
done as per the generally accepted auditing standards.
b. Working papers serve as an audit tool and as permanent record of audit work performed.
c. They help the auditor to prepare auditor’s report
d. They enable the auditor to know the system of internal check, their strength and
weakness.
e. Working papers facilitate delegation of work.
f. They provide a means to control the quality of audit work by ensuring that minimum
quality standards are maintained.
g. Ensures that all relevant issues in the audit area are addressed.
h. Create a bridge between original transactions and financial statements
i. They reveal how the work was performed by the staff thereby getting an idea about the
efficiency of the audit staff.
j. They serve as a guide to the auditor for auditor of the same client in future.

DEMERITS OF AUDIT WORKING PAPER

a. It is not appropriate to follow mechanically a standardized approach to the conduct and

documentation of the audit work without regard to the need to exercise judgment.
b. Work becomes mechanical
c. Client’s staff may become familiar with the method.
d. The initiative of the audit staff may be stifled.
e. It’s very often, it creates misunderstanding between the client staff and the audit staff.
f. If it is not properly and carefully prepared it cannot be used as evidence against the
auditor for negligence.
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ESSENTIALS OF GOOD WORKING PAPERS

a. Working papers should be complete in all respects. They should contain all necessary
information so that they may be of maximum use.

b. They should be properly organized and arranged so that one may not experience any
difficulty in locating a particular matter.

c. They must contain accurate information so that they will be relied upon.

d. They should contain the facts, which are of self-explanatory.

e. The facts given in working papers should be readily apparent to the reader.

f. The relevant details should always be kept in the working papers. All irrelevant
information should be kept out of the space in order to enhance their utility for the
purpose for which they are kept.

g. The audit working paper files should be properly preserved and filed. These files should
be serially numbered and indexed so that they may be made available whenever they are
needed.

h. Paper used for the preparation of working papers should be of better quality and
uniform size.

i. Sufficient space should be left after each note so that any decision taken by an auditor
may be written in that space.