2.4 Overview of the Audit Process Audit Planning Audit Strategy vs Plan vs Program
Summary
TLDRThis video script delves into the intricacies of audit planning, contrasting the concepts of audit strategy, plan, and program. It uses the analogy of organizing a Filipino-themed party to clarify these distinctions. The script highlights the importance of developing an audit strategy to set scope and direction, an audit plan for a detailed engagement outline, and an audit program for specific step-by-step audit procedures. It also touches on considering the work of others, including predecessor auditors, internal auditors, and experts, emphasizing the auditor's responsibility and the need for objectivity and competence in these collaborations.
Takeaways
- 📘 The difference between audit strategy, audit plan, and audit program is essential for audit planning. The strategy is the broadest, the plan is more detailed but still broad, and the program contains specific, step-by-step procedures.
- 🎉 An analogy of planning a social event, like a Filipino-themed party, helps to illustrate the concepts of strategy, plan, and program in the context of audit planning.
- 🔍 Audit strategy is the required output of audit planning, which involves designing approaches to achieve necessary audit assurance at the lowest cost within available information constraints.
- 📝 The audit plan is more detailed than the strategy and includes an overview of the engagement, objectives, services, timetable, staff assignments, and preliminary evaluations.
- 🍗 The audit program provides a set of detailed instructions for auditors, including audit objectives for each area and time budgets, to ensure proper execution of work.
- 🛠️ Developing audit programs for initial engagements typically occurs in three stages, starting with broad phases and becoming more detailed as the audit progresses.
- 🔄 The audit program is not fixed and can be revised as work progresses, similar to materiality considerations that can be reviewed and adjusted during the audit.
- 🤝 Considering the work of others involves initiating contact with predecessor auditors and evaluating the involvement and objectivity of other professionals, such as internal auditors and experts.
- 👥 Internal auditors can assist external auditors but cannot take over or share the responsibility of the audit, which remains solely with the external auditor.
- 🏢 The objectivity of experts and internal auditors can be assessed through their organizational reporting structure, while their competence can be evaluated through academic background and certifications.
- 📑 Client-prepared working papers should not be accepted at face value and must be corroborated as part of the audit process.
- 🔚 The completion of audit planning phase sets the stage for the next phase, which is risk response, to be discussed in the subsequent video.
Q & A
What is the main difference between an audit strategy, an audit plan, and an audit program?
-An audit strategy is the broadest, setting the scope, timing, and direction of the audit. An audit plan is more detailed than a strategy but still contains broad strokes, outlining the nature and characteristics of the client's business and audit objectives. An audit program is the most detailed, containing specific audit procedures and instructions for each audit.
Why is it important to establish an audit strategy during audit planning?
-Establishing an audit strategy is crucial as it involves designing optimized approaches to achieve the necessary audit assurance at the lowest cost within the constraints of available information. It guides the development of a more detailed audit plan.
What are the key elements included in an audit plan?
-An audit plan includes the description of the client company, audit objectives, services to be performed, timetable of audit work, estimated start and end dates, work to be done by the client, assignment of audit staff, target completion dates, preliminary evaluation and judgment about materiality levels, special problems to be resolved, and conditions that may require changes in audit tests.
How is an audit program developed for initial engagements?
-For initial engagements, the audit program typically develops in three stages. The broad phases of the program can be outlined at the time of engagement, more details can be identified after the review of internal control structure and accounting procedures, and specific audit phase procedures can be further challenged and revised as work progresses.
What is the purpose of considering the work of others during audit planning?
-Considering the work of others allows the auditor to evaluate the competence and objectivity of other professionals involved, such as the predecessor auditor, internal auditors, and external experts. This helps the auditor to determine the extent to which they can rely on the work of these individuals.
Why is it necessary for an auditor to initiate contact with a predecessor auditor?
-Initiating contact with a predecessor auditor is necessary to gain insights into the client's previous audit experiences and to understand any potential issues or concerns. However, the extent of information shared is dependent on the client's permission.
How can an auditor assess the objectivity of an expert involved in the audit?
-An auditor can assess the objectivity of an expert by examining their organizational position, lines of communication, and to whom they directly report. This helps determine if the expert is influenced by parties that could compromise their objectivity.
What is the role of internal auditors in协助 an external audit?
-Internal auditors can assist external auditors by performing specific audit procedures and enhancing internal control. However, the responsibility for the audit cannot be transferred or shared with internal auditors; they are there in an assisting capacity only.
How can an auditor ensure that the audit program is adaptable to changes during the audit process?
-An auditor ensures adaptability by regularly reviewing and revising the audit program as the work progresses and as new information becomes available. This allows the program to reflect the current audit context and address emerging risks or issues.
What are some factors that could require changes in audit tests as outlined in an audit plan?
-Factors that could require changes in audit tests include changes in the client's business operations, new regulations, identification of material misstatements, or the discovery of new risks during the audit process.
Why is it important for an auditor to corroborate information provided by client staff or internal auditors?
-Corroborating information is important to ensure its accuracy and reliability. It helps the auditor to verify that the information provided is not misleading and to maintain the integrity of the audit process.
Outlines
📋 Understanding Audit Strategy, Plan, and Program
The first paragraph introduces the concept of audit planning and the distinction between an audit strategy, plan, and program. The speaker uses the analogy of planning a Filipino-themed party to explain these concepts. The theme of the party represents the audit strategy, which is broad and sets the general direction. The specific areas of focus, like dress code and food, are likened to the audit plan, which is more detailed but still in broad strokes. Finally, the detailed recipe for cooking adobo symbolizes the audit program, which contains step-by-step instructions. The paragraph emphasizes that the audit strategy is the highest-level output of audit planning, guiding the development of a more detailed audit plan. The audit plan outlines the nature and characteristics of the client's business, objectives, services, timetable, staff assignment, and materiality levels. It is pre-prepared and includes considerations for potential changes in audit tests.
🔍 Developing Audit Programs and Considering the Work of Others
The second paragraph delves into the development of audit programs, especially for initial engagements, which typically occur in three stages. It starts with outlining the broad phases of the program during engagement, identifying further details after reviewing the internal control structure and accounting procedures, and refining specific audit phase procedures as work progresses. The paragraph also touches on the anxiety new certified public accountants might feel about performing audits and reassures them to follow the audit program's instructions. Additionally, it discusses the importance of considering the work of others, such as predecessor auditors, internal auditors, and external experts, emphasizing the need to evaluate their objectivity and competence. The speaker also clarifies that while internal auditors can assist, the external auditor cannot transfer or share responsibility with them.
🎯 Completing Audit Planning and Transitioning to Risk Response
The final paragraph wraps up the discussion on audit planning, having covered the risk assessment procedures. It highlights that audit planning encompasses not only planning but also risk assessment, indicating the comprehensive nature of the process. The speaker announces that the next video will focus on risk response, signaling a transition to the next phase of the audit process. This paragraph serves as a conclusion to the current topic and a preview of upcoming content, maintaining the viewer's engagement and setting expectations for future discussions.
Mindmap
Keywords
💡Audit Planning
💡Risk Assessment
💡Audit Strategy
💡Audit Plan
💡Audit Program
💡Materiality
💡Predecessor Auditor
💡Internal Auditors
💡Experts
💡Working Papers
💡Risk Response
Highlights
Introduction to the last three activities of audit planning: audit plan, audit program, and considering the work of others.
Explanation of the difference between an audit strategy, audit plan, and audit program using the analogy of planning a social event.
Audit strategy is the broadest, setting the general scope, timing, and direction of the audit.
Audit plan is more detailed than a strategy but still contains broad strokes, focusing on specific areas of the audit.
Audit program provides the most detailed set of instructions for each audit, guiding the execution of work.
The audit plan includes an overview of the engagement, client company description, audit objectives, and services to be performed.
Details of the audit plan: timetable, work to be done by the client, assignment of audit staff, and target completion dates.
Preliminary evaluation and judgment about materiality levels and special problems to be resolved in the audit plan.
The audit program includes step-by-step procedures and instructions for audit staff to follow.
Development of audit programs in three stages for initial engagements, with revisions as work progresses.
The audit program can be revised during the audit process, similar to materiality considerations.
Considering the work of others involves initiating contact with the predecessor auditor and evaluating their responses.
Working with internal auditors, assessing their objectivity and expertise, without transferring audit responsibility.
Evaluating the competence and objectivity of experts involved in the audit process.
Importance of corroborating information from client-prepared working papers.
Internal audit departments can assist external auditors but do not replace the auditor's responsibility.
Completion of audit planning phase and transition to the next topic, risk response, in the upcoming video.
Transcripts
hello again and yes we are still in
audit
planning I thought that in the last
video we'd be able to take off the last
three activities but as fate would have
it we were only able to discuss
assessing and managing risks so for this
segment we're going to finish discussing
audit plan and audit program and
considering the work of others which
actually are quite short
subtopics but we need this one for us to
be able to complete audit planning let's
now talk about the difference between an
audit strategy versus an audit plan and
an audit program now I'd like for you to
imagine planning a social event maybe a
party can you think maybe of a
Thanksgiving party that you would be
organizing once you become a certified
public accountant already and perhaps we
get to think about the theme of this
party maybe you feel so patriotic that
time and you are saying well the theme
of my party is that it has to be very
Filipino Pino na Pinoy okay everything
must be in Philippine mode okay so if
you think about it that's the theme that
will drive everything else right and
then you go to thinking about what
particular areas in my party would make
it scream Filipino and then you have
identified well number one the dress
code everything must be in filipiniana
number two maybe the food it has to be
Filipino food maybe the program all of
the songs and intermission number must
be done by Filipino artists and songs
and then maybe the language that is
being used Bal mag English okay
everything must be in Filipino and then
when you talk about the food for example
let's think about adobo for example and
then we come up with the recipe for
adobo how do you cook adobo what do you
need what are the steps in order to cook
the perfect Filipino adobo why am I
talking about these things you might
think that it's all you know how is this
related to a strategy versus plan versus
program well if you think about it the
theme of having a purely Filipino social
Gathering is or can be likened to an AIT
strategy you design the general scope
timing and Direction and then once
you're able to identify the specific
areas we to focus on still in broad
strokes but now it's becoming a little
bit more definite a little bit more
concrete and you're able to identify
specific areas already and then when we
go to the recipe for how to cook adobo
it has become so detailed right it's the
most detailed of them all so strategy is
the broadest and then you're able to
identify the general areas of focus
that's the audit plan and then you get
to talk about the instructions on how to
and that is what you will find in an
audit program prog so the audit strategy
is a required output of audit planning
it establishes or establishing the audit
strategy involves designing optimized
approaches that seek to achieve the
necessary audit assurance at the lowest
cost within the constraints of the
information available as previously
mentioned the overall audit strategy
sets the scope timing and direction of
the audit and it guides development of
the more detailed audit plan so definit
ly the audit plan is more detailed than
an audit strategy but is still broader
as compared to an audit program so an
audit plan contains the overview of the
engagement outlining the nature and
characteristics of the client's business
operation and it has to be in tune or in
line with the overall audit strategy
this is of course pre prepared before
starting the work at the client's office
and typically includes the following
information the description of the
client company what are the audit
objectives the description of the
services to be performed the timetable
of the audit work estimated start date
and estimated end date the work to be
done by the client the assignment of the
audit staff the target completion dates
preliminary evaluation and judgment
about materiality levels any special
problems to be resolved and conditions
that may require changes in audit test
so you would notice that the audit plan
is more
detailed than an audit program however
however in terms of the actual
procedures the procedures are still in
Broad Strokes if you would like to see
the specific details stepbystep
procedures then you look for the audit
program because the audit program is a
set of audit procedures specifically
designed for each audit and in here you
will see the set of instructions no
addressed to assistance involved in the
audit as a means to control and record
the proper execution of the work that is
why for some of our students have become
new certified public accountants and
they become a bit anxious as to can they
really perform an audit do they really
would they know what to do then I would
just say not to worry just find the
audit program the audit program includes
the set of instructions and then just
follow the instructions the audit
program may also contain audit
objectives for each area and of course
the time budget again the idea is that
it is able to control and record the
proper execution of the work now in
terms of developing the audit programs
if for example this is an initial
engagement the audit program typically
will develop in three stages this is for
initial engagements okay of course for
recurring engagements you would already
have a ready audit program you just need
to tailor fit it or revise it as the
need would arise but for initial uh
engagements the audit program will
develop in three stages the broad phases
of the program can be outlined at the
time of the engagement and then other
details can be identified after the
review of the internal control structure
and accounting procedures has begun and
you must remember that the review of the
internal control structure and
accounting procedures is normally done
at the risk assessment phase and then
procedures on specific phases of the
audit can be further challenged and
revised as the work progresses this
gives you then the idea that coming up
with an audit program does not mean that
it is already fixed and can no longer be
revised in fact as the work progresses
the audit program can be challenged and
revised similar to our materiality
considerations while we initially set
materiality at the beginning we are
allowed to review it and even revise it
as the audit progresses so just the same
with our audit programs as well so that
is the difference between a strategy the
broadest the plan more detailed than a
strategy but still contains broad
strokes and then if you want the details
set of instructions then we go for the
audit program and then finally to take
off the last activity under audit
planning we take a look at considering
the work of others and for the work of
others of course who are these others we
talk about the ex auditor or the
predecessor auditor and we already know
that as an incoming auditor as as a
successor auditor it is a responsibility
to initiate contact with the predecessor
auditor provided that the client so
allows it by the way there are certain
instances whereby the client would allow
the predecessor auditor no to respond to
your request but then may also limit the
response of the predecessor auditor so
if the client allows the predecessor
auditor to give a limited response then
the predecessor auditor simply discloses
the fact that only a limited response is
allowed or if the client does not allow
prohibits the predecessor auditor from
responding
to the successor Auditor's uh
communication then the predecessor
auditor will simply also have to
disclose that such permission was not
granted you may also be finding
yourselves working with other CPA such
as for example if the client has
internal Auditors and if these internal
Auditors are also CPAs or even when they
are not CPAs you you also need to
determine the involvement of these
people in the audit uh in including as
well their objectivity and their
expertise speaking of expertise you may
also find yourselves working with
experts and in this case you should
evaluate the expert's competence and the
expert's objectivity while we do not
necessarily expect experts to be
independent but at the very least they
should be
objective the objectivity of the expert
similar to that of an internal auditor
can be seen by inspecting the
organizational chart or looking at their
their lines of communication to whom do
they directly report to in terms of
competence on the other hand well you
could always look at their academic
backgrounds and certifications and such
of course we need to work with the
client staff okay so there are certain
working papers that are prepared by the
client but we have to remember they
should not be accepted at face value it
is important that while we gather this
information and yes they are evidence we
still have to corroborate R said
information okay and as I have mentioned
you may be working with internal
Auditors it can affect your audit in two
ways number one an internal audit
Department actually enhances internal
control and they could help assist the
external Auditors in performing specific
audit procedures however I must be very
clear in telling you that you cannot
transfer your responsibility to the
internal Auditors in fact you can't even
share your responsibility with the
internal auditor okay they are simply
there in in in an assisting capacity but
they are not to take your place and you
cannot share your responsibility with
them so there you have it activities
five and six for audit planning so yeahi
to us we have already ticked off the
phase on audit planning and as you have
very well seen our audit planning phase
already encompasses as well the risk
assessment procedures wow that's this is
a short video but we will meet again in
the next video and this time we're going
to talk about risk response so see you
then
e
e for
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