1.1 Why Planning an audit is necessary?
- Its Benefits FOPETS C
Planning an audit is necessary to carry out it effectively in a timely manner. Besides ensuring compliance with
professional standards, it helps in performing audit engagement effectively.
1. Helping the auditor to Focus and attentive on important audit areas.
2. Helping the auditor identify and resolve potential problems on a timely basis.
3. Helping the auditor properly organize and manage the audit engagement so that it is performed in an effective
and efficient manner.
4. Assisting in the selection of engagement team members with appropriate levels of capabilities and
competence.
5. Facilitating the direction and supervision of engagement team members and the review of their work.
6. Assisting in coordination of work done by auditors of components and experts.
Therefore, planning an audit ensures that audit risk is reduced to an acceptable low level. When audit work is
adequately and properly planned, it reduces the risk of inappropriate opinion by the auditor.
Q.NO.2 AUDIT PLANNING IS A CONTINUOUS PROCESS. EXPLAIN?
1. Planning is not a discrete (specific) phase of an audit, but rather a continual and iterative (repetitive) process.
2. Planning begins after the completion of the previous audit and continues until the completion of the current
audit engagement.
3. Further the audit plan shall be reviewed periodically to ensure that it covers new audit areas identified if any
during the course of audit, making it up to date.
PLANNING INCLUDES CONSIDERATION OF FOLLOWING MATTERS:
LAMPER
L: Legal framework understanding (e.g., TRAI for telecom, RBI for banks).
A: Analytical procedures to identify trends and anomalies.
M: Materiality determination as per SA 320.
P: Professional expertise (need for expert assistance based on complexity).
E: Environment risks (risk assessment procedures to identify material misstatements).
R: Regulatory compliance evaluation.
Q.NO.3 WRITE ABOUT INVOLVEMENT OF ENGAGEMENT TEAM IN PLANNING PROCESS?
The overall audit strategy and the audit plan remain the auditor’s responsibility. It is the auditor who is
responsible for establishing overall audit strategy and developing audit plan. However, the auditor may discuss
elements of planning with entity’s management without compromising effectiveness of audit.
INVOLVEMENT OF KEY ENGAGEMENT TEAM MEMBERS:
1. The engagement partner and other key members of the engagement team shall be involved in planning the
audit including planning and participating in the discussion among engagement team members.
2. The involvement of the engagement partner and other key members of the engagement team in planning the
audit draws on their experience and insight, thereby enhancing the effectiveness and efficiency of the planning
process.
DISCUSSION OF ELEMENTS OF PLANNING WITH ENTITY’S MANAGEMENT:
1. The auditor may decide to discuss elements of planning with the entity’s management to facilitate the
conduct and management of the audit engagement.
2. When discussing matters included in the overall audit strategy or audit plan, care is required in order not to
compromise the effectiveness of the audit.
3. The matters related to surprise checks shall not be included in the discussion with client.
Q.NO.4 WRITE ABOUT ELEMENTS OF PLANNING?
The elements of planning can be categorized as under:
a. Preliminary engagement activities:
i. Performing procedures related to acceptance and continuation of client relationship.
ii. Procedures related to compliance with ethical requirements.
iii. Establishing an understanding of terms of engagement.
b. Planning activities:
i. Establishing the overall audit strategy.
ii. Developing an audit plan
Q.NO.5 WRITE ABOUT PRELIMINARY ENGAGEMENT ACTIVITIES?
1. Acceptance and Continuation of Client Relationship
The auditor evaluates whether to accept a new client, continue with an existing client, or take on a new
engagement with an existing client. This involves:
I Can Review Properly
a. Integrity of Key Stakeholders
Assessing the principal owners and management for honesty and ethical behavior.
b. Competence of the Engagement Team
Ensuring the team has the skills and resources to perform the audit.
c. Review of Past Engagements
Considering issues or challenges from previous audits that may influence the current engagement.
d. Communication with Predecessor Auditor (for initial engagements):
Contacting the previous auditor to understand reasons for the change and gather relevant information.
2. Relevant Ethical Requirements
The auditor ensures ongoing compliance with ethical standards, including independence.
a. Continuous Evaluation
Independence and ethical compliance are monitored throughout the audit.
b. Definition of Independence
Independence means the auditor’s judgment is free from undue influence.
c. Engagement Partner’s Role in Monitoring
Observes and inquires to detect non-compliance within the team.
Takes corrective actions if any team member violates ethical standards.
d. Actions on Non-Compliance
Evaluates threats to independence and applies safeguards to mitigate them.
If threats cannot be reduced to an acceptable level, the engagement partner may decide to withdraw
from the engagement.
e. Reporting Independence Issues
The engagement partner promptly reports unresolved matters to the firm for further action.
3. Establish Terms of Engagement
a. Audit Engagement Letter
The auditor sends an engagement letter before starting the audit to define the terms of the
engagement, roles, and responsibilities.
b. Benefits
Avoids misunderstandings between the auditor and the client.
Establishes a clear understanding of the scope and objectives of the audit.
Purpose of Preliminary Engagement Activities
These activities enable the auditor to:
Identify potential challenges.
Evaluate risks.
Ensure readiness to plan and perform the audit effectively.
