2.4 Overview of the Audit Process Audit Planning Audit Strategy vs Plan vs Program

Summary

This 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

00:00

📋 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.

05:01

🔍 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.

10:04

🎯 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.

Keywords

💡Audit Planning

Audit planning is the initial phase of the audit process where auditors determine the scope, timing, and direction of the audit. It is crucial for setting the foundation for a successful audit. In the script, audit planning is the overarching theme, with discussions on various components such as assessing risks, developing an audit strategy, and considering the work of others.

💡Risk Assessment

Risk assessment is a process within audit planning where potential risks that may affect the accuracy of financial statements are identified and evaluated. It helps in determining the areas that require more attention during the audit. The script mentions risk assessment as a part of the audit planning phase, emphasizing its importance in managing risks effectively.

💡Audit Strategy

An audit strategy refers to the broad approach designed to achieve necessary audit assurance at the lowest cost within the constraints of available information. It sets the general direction of the audit. In the script, the analogy of a purely Filipino social gathering is used to illustrate the concept of an audit strategy, highlighting how it provides the overarching theme or direction for the audit.

💡Audit Plan

An audit plan is more detailed than an audit strategy and outlines the specific areas to focus on during the audit. It includes information about the client company, audit objectives, services to be performed, and a timetable for the audit work. The script explains that the audit plan is developed in line with the overall audit strategy and is more detailed but still contains broad strokes compared to an audit program.

💡Audit Program

An audit program is a set of specific audit procedures designed for each audit engagement. It provides step-by-step instructions for auditors to follow, ensuring the proper execution of work. The script uses the analogy of a recipe for adobo to explain the detailed nature of an audit program, emphasizing its role in guiding auditors through the audit process.

💡Materiality

Materiality in auditing refers to the threshold at which the magnitude of an error or misstatement would be material enough to affect the economic decisions of users of the financial statements. The script mentions that materiality levels are evaluated and adjusted as the audit progresses, reflecting the dynamic nature of this concept in the audit process.

💡Predecessor Auditor

A predecessor auditor is the auditor who previously conducted the audit of a client. The script discusses the responsibility of the successor auditor to initiate contact with the predecessor auditor, subject to the client's permission, to understand the previous audit findings and approach.

💡Internal Auditors

Internal auditors are professionals within an organization who evaluate the effectiveness of the company's internal controls and financial reporting. The script highlights the importance of considering the work of internal auditors during the audit, while also clarifying that the external auditor cannot transfer or share responsibility with them.

💡Experts

Experts in the context of auditing are individuals with specialized knowledge or skills that can assist in the audit process. The script emphasizes the need to evaluate an expert's competence and objectivity, noting that while independence is not expected, objectivity is essential.

💡Working Papers

Working papers are the documents prepared during an audit that provide evidence of the audit procedures performed and the auditor's conclusions. The script mentions that while working papers are important, they should not be accepted at face value and must be corroborated for accuracy.

💡Risk Response

Risk response in auditing is the action taken by auditors to address the risks identified during the risk assessment phase. The script indicates that risk response will be the topic of the next video, suggesting it as a critical component of the audit process following audit planning.

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