Audit Planning: Process, Objectives, and Key Areas

Audit Planning: Process and Objectives

Audit planning is the action plan that determines the procedures necessary to achieve the audit objectives. It is achieved by testing to obtain evidence to support the auditor's opinion, taking into account materiality and audit risk.

Audit Planning Process

During the planning process, the auditor should consider, among other things:

• A) An adequate understanding of the entity's business, the sector in which it operates, and the nature of its transactions.
• B) The procedures and accounting principles applied by the company, the consistency with which they are applied, and the accounting systems for recording transactions.
• C) The degree of efficiency and reliability initially expected of internal control systems.

Contents of the Letter of Proposal

In accordance with auditing standards, the preliminary analysis starts with customer contact to obtain adequate information. This establishes the terms of the audit and the scope of work and helps understand the client's expectations. It also involves fixing the fees and the number of estimated hours for the job. It is also worth noting both the form and methods of work, as well as auditor requirements (access to files, internal audit reports, staff collaboration).

Likewise, the auditor should refer to the system of internal control and the letter of recommendations that will be sent to the client. The auditor should also review previous audit results, analyze recent financial information, and check the accounting principles and standards applied to determine the relative importance and nature of the tests that will be performed.

Audit Program

Realization planning specifies procedures to be applied in each area, as well as tests to be performed on transactions. It considers the experience and ability to perform them, the signs to be consummated (size, method selection), and the time to implement specific evidence.

Audit programs meet two objectives:

• Coordination of audit work
• Registry of work, documented in the working papers, which serves as proof against third parties and enables monitoring.

The audit program consists of three parts:

• Introduction: Identifies the company.
• Objectives of the work: Sets specific objectives in the area, in accordance with the general objectives identified in audit planning.
• Audit Procedures.

Key Areas in Audit Planning

Planning: The action plan sets out the procedures necessary to achieve audit objectives. It is achieved by testing to obtain evidence to support the auditor's opinion, taking into account materiality and audit risk.

The relevant areas in which the auditor should pay more attention to at the time of preparing the audit program are:

• Hotspots: These are areas that, by their nature, are particularly sensitive to the possibility of errors in their figures. They can vary from one company to another (e.g., foreign currency balances, loans to directors).
• Significant areas: These are named for the importance of the amount of alleged interest to users of accounting data. They tend to be common to companies of the same type (e.g., fixed assets, sales, and stocks).
• Additional areas: These are areas that have a high interest to the company. Despite being unimportant to the auditor, they should not be ignored.