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04/17/2012

Audit Planning


 

Audit Planning

 

Introduction

The audit planning and the related activities are made to align the management in the organization’s goals. Entirely, the audit processes are meant to secure the finances that is based on the level of activities that might incorporate in the overall audit planning and the other resources which is very important in the organization.

Four Parts of Audit Planning

Activities

a. Accept client and perform initial audit planning

Send an engagement letter to the client

 

Tour the client's plant and offices

 

Compare the key ratios for the company with those of industry competitors

b. Understand the client's business  and industry

Review management risk, management controls and procedures

 

Identify the potential related parties that may require disclosure

c. Assess client business risk

Review the company's constitution

 

Identify whether any experts are required for the engagement

d. Perform preliminary analytical procedures

Review accounting principles unique to the client's industry

 

Determine the likely users of the financial statements

Audit Planning

The audit process is specified to ensure the capability of the company and the stability of its performance in the industry. The first key to the success of auditing is to establish a good communication, trust and openness. With the deep understanding on the service, there will be a complete and success in the common goal. The auditing plan can assess the effectiveness if there is an appropriate use of the related procedures and cooperation of both parties. The audit service and the business should address the certain issues that might develop the open communication.  

In the examination of the plans, the service should prioritize the initial steps and the preliminary examinations to emphasize the exchange of information. This leads to the critical preparation of the quality risk analysis. In the administration of the audit service, the time is essential in the discussion of the related information in the planning process. Moreover, the information and the examination of the business’s affiliations will meet the determination of the risks. The responsibility of the people and other significant resources can create an impact in the audit planning and activities, and is therefore advised that both parties should provide appropriate action.

Discussion

In the engagement of the audit service with the client, the participation is been recognized, all for the purpose of understanding the accountability and the authority. Under the activity of accepting the client and preliminary audit planning, is the basic step can be most beneficial in the audit process.  Touring in the business’s plants and offices can be the vital process in getting the right information. Meanwhile, in comparing the key ratios of the competitors, the assessment and timeliness of the work and service can be also addressed towards the organizational efficiency and empowering of the people.

Understanding the business’s environment and the complexity of the industry can be smoothened by reviewing the risks involved. Reviewing the important details such as managerial controls and risks, and the related accounting principles can help to identify the controls and procedures in the business. The team and the other related parties are compelled to work together regarding the idea, issues, or concerns in disclosing the information. The decisions created by the audit service are under the ethics and integrity. The communication built between the service and the customers can help establish the fairness and consistency in the administration can be under the assessment of the business’s risk. The roles in distribution of strategic and tactical responsibilities can remove the obstacles; facilitate the discussion, positive relationship in the initiatives and generating the new information (IRS, 2003). 

Performing the preliminary analytical procedures can be in reviewing the accounting principles in the business’s unique environment that can contribute in understanding and applying the rules and guidelines in the audit planning, the appropriate examination and the accountability of the process can be determine. The activities that arising in the accounting standards is the compliance of the auditing processes and the need for the internal control which bound to explain the weaknesses in the accounting departments (APB, 2009). The focus of the auditor’s decisions may feature on the high-risk areas in management and it is very vital in avoiding the errors in the financial statements that is why there is a need for the constant review on the materials. Moreover, the auditing standards and the theory involved indicate the appropriate judgment in the managerial actions. Ideally, the audit results might help the creation of a valuable decision (Jiambalvo and Kennedy, 2002).

References:

APB, 2009. APB Ethical Standards Consultation on Audit Firms Providing Non-Audit Services to Listed Companies that they Audit, The Auditing Practices Board [Online] Available at: http://www.frc.org.uk/images/uploaded/documents/APB%20ES%20NAS%20Consultation%20%28October%202009%29.pdf [Accessed 27 March 2010].

IRS, 2003. A Cooperative Effort of the Large and Mid-Size Business Division of the Internal Revenue Service and the Tax Executive Institute, Internal Revenue Service [Online] Available at: http://www.irs.gov/pub/irs-utl/09-17-03_joint_audit_planning_process_with_cover.pdf [Accessed 27 March 2010].

Jiambalvo, J., & Kennedy, J., 2002. Analytical Procedures and Audit Planning Decisions, Journal of Accountancy, Vol. 191, No. 2

 

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