Audit Plan
In accordance to ISA 300, an audit plan refers to the general plan and detailed approach that the auditor intends to use in the process of conducting the audit with reference to the spread of the audit the scope and timing. Also, the plan takes into consideration matters that relates to risk and materiality concepts (Moeller, 2010). A plan is essential to the audit process since it is used to improve on the efficiency of carrying out the audit process hence ensuring that the process is concluded in a timely manner. However, the form and the nature of the audit process are highly dependent on the size and the complexity the organization, the commercial environment that the firm is in, and the method that the organization applies to report its transaction and to report to the relevant centers of authorities.
Scope of the Audit plan
Audit planning covers the entire plan that will be used to map out the coverage and the conduct of the audit process. The plan is usually recorded in the planning memorandum. It is then followed by the development of the audit program that will facilitate the application of the audit procedures at every level of testing. As such, this call for the auditor understands of the client business, internal controls, industry and management strategies (Russell, 2005). The understanding is necessary since it allows the auditor to appreciate the transaction that has a large impact on the financial statement.
Audit Planning Procedures
The auditor carries out a preliminary review on the client. The procedure will involve obtaining significant understanding of the nature of the client business. The understanding can be achieved through the following ways
- Previous experience with the entity for the case of continuing auditor
- Previous experience with similar entities within the same industry
- Constructive discussion with members of staff within the firm being audited
- Discussion with fellow auditors that have offered the services to the firm that is being audited
- Reviewing journals and publications that relates to the industry where the firm operates
- Physical visiting the firm place of business
- Reviewing documentation such as annual financial reports, operation system manual and budgets
The auditor ensures that clear understanding of the management structure, the general feel of the client operating circumstances and the factors that affect the client internal control and financial reporting and accounting systems.
The auditor reaches out to the previous auditors to obtain as much details as possible that will allow the new auditor to effectively audit the client and have adequate understanding of the risk and materiality elements in the new client.
Review any legislation and accounting standard that will have a material effect on the audit of the client.
The auditor in charge will evaluate the nature and the timing of the communication for instances the date of the AGM and Stock takes among others such that the detailed that are obtained are integrated in the audit plan
The auditor in charge should selectively determine the audit staff that will be required in order to offer quality service to the client, their experience and any special skills that may be required to effectively offer high quality audit.
The auditor must prepare an audit planning memorandum that summarizes the scope of work under the strategy and engagement that will be used to attend to the client needs.
The Audit Memorandum
The plan will determine the approach that is used in the audit, the manner the approach is used, the personnel that are used, the time in which each procedure will be used and the timing in which each element of the financial statement is examined. In general, the plan will contain
- Procter and Gamble background information
- Records of Procter and gamble changes since the last audit was carried out such as change in a key management personnel
- The job timetable is outlined giving the provisional dates that each milestone is expected to be realized
- The key details of the Procter and Gamble contacts
- The extent of reliance that the auditor will have on the internal control system
- A summary of the term of engagement that are required to set out the scope of the audit work
Audit Program
An audit program refers to the nature in which the audit strategy is applied. It is common and best practice for an auditor to develop an audit program for each material account. The program outlines the general objectives and the specific procedures that will be applied on specific audit areas such as the audit test.
Audit Tests Applicable
There are five audit tests that can be used namely risk assessment, test of controls, substantive tests of transaction, analytical procedures and test of details of balances. Risk assessment procedure refers to procedures that are performed collectively in order to have an understanding of the firm and their environments, including the internal controls, represent the auditors risk assessment procedure. The test is a procedure to evaluate the risk that may be caused by material misstatement in financial statement. However, most of the procedure that is applied mainly concentrates on the internal controls since it a predicting factor that will guide the auditor regarding the amount risk that may be associated with financial statements (Kagermann, 2008).
Test of controls is the a test that is used to give the auditor an understating of internal control hence facilitating the auditor to access the control risks of every transaction related audit aim. Specific test will be inquiries relating to client personnel appropriateness and examining the company records, reports and documents (Rittenberg and Johnstone, 2012).
Substantive test of transaction refers to the procedures that are aimed at testing dollar misstatement that have a direct effect on financial statement balance correctness. As such, the substantive procedures are used to evaluate whether the six transaction related audit objective have been met for each class of item that is audited. Specific tests that can be applied include verification of records and summering the cash transaction receipts and sales value. Also, ensuring that sales transaction exists, and sales records for existing sales are recorded.
Analytical procedures are the comparison of actual figures with standard expectation that the auditor has developed (Pickett, 2006). The two fundamental concepts that are applied is the ability to indicate potential misstatement and avail substantive evidence. Specific tests include computing the gross margin in the planning and completing stage and predicting the ending balance and making a comparison with the actual balance.
Test of details of balances is a procedure that focuses on ending general ledger balances for both financial performance statement and financial position. However, the main emphasis is on the balance sheet. As such, these procedures are essential in establishing the monitory correctness of the account that they refer (Roessing, 2002). However, the extent to which this procedure is applied depends on the results of the other tests since it is mainly focuses on the closing balances. In the event the other audit the tests suggest that the standards of accounting have been highly violated then the test will be applicable to a large extent. Specific test includes confirming the customer balance for the firm debtors and making physical counts of the company inventory.
Audit Recording
Working Papers
According to ISA230, the auditor is obliged to document all the information that is gathered as evidence that will be relied upon during the formulation of the audit opinion. The evidence that is obtained is stored in terms of working paper that are prepared and retained by the auditor. The papers should be sufficiently detailed and complete such that an inexperienced assistant can use to ascertain the work that was carried out by the audit team. In the papers, the auditor must record all the evident that are available to him at that time, the management view and the conclusion that is reached. However, standards working papers have been developed to improve on the accuracy of keeping audit evidence (Cerson, 2008). The papers have been developed in a manner that each audit firm has its specification of reporting the found information.
The Permanent Audit File
The file contains document and matters that are of importance in more than one audit period. The permanent file contains (Kumar and Sharma, 2005);
- Statutory materials that governs the process of audit
- Rules and regulation that governs the operation of the firm such as memorandum of association and articles of association
- A list of directors and service contacts
- List of company advisors, layers, bankers, values and stock brokers
- The organization history of reserves and share capital
- Accounting policies that are used on material accounts such as depreciation and inventory management
- Copies of continued importance to the auditor such as the minutes that were written in the appointment meeting of the auditor, indemnities and guarantees
The Current File
The file contains matters and documents that relate to only the current audit period. These matters and document are(Moeller, 2013);
- A copy, signed by the directors, of the accounts and items that are being audited
- A file index that serves to outline the content of the file
- The description of the organization internal controls that is presented in the most suitable form such as a flow chart diagram or any other form that best suites the situation
- An audit program that outlines the details of the audit procedure and objective that relates to each item being audited
- Records that shows the question that were raised during the audit process
- A schedule of items in the statement of financial position and audit procedure that relates to each of them
- A schedule of all important statistics such as liquidity ratios and sales composition
- A copy of the minutes of directors or any other meeting that the auditor considered important to the work
- The management letter that sets out the weakness of the internal
- A checklist that is used to evaluate compliance to statutory disclosures
Audit Report
Report on Financial Statement
We have conducted an audit on the financial statement of Procter and Gamble Limited, which consisted of Statement of Changes in Equity, Comprehensive Income Statement, Cash Flow Statement and Balance Sheet as at 31st December 2013, a summary of accounting policies and other relevant information as set on pages BB to CC.
Directors’ Responsibilities for the Financial Statement
The company directors have the responsibility of preparing financial statement with the aim of giving a true and fair value of Procter and Gamble in accordance to the financial reporting standards and the companies act. Also, the director has the responsibility for such internal controls that they may find necessary in order to facilitate an enabling platform to prepare financial statements that lack material misstatement whether, as a result, of fraud or error.
Auditor Responsibility
Our responsibility to issue an audit opinion is based on the results of the audit. We conducted the audit as per the specification of the acceptable and approved audit standards. The standards require that the auditor should ensure that ethical requirement are met and plan and perform the audit to gather adequate assurance about the financial statement about whether they are free from any fraudulent or non-fraudulent material misstatement.
An audit involves carrying out various procedures in order to collect audit evidence about disclosures and amounts in the financial statement. The procedures that are conducted are determined by own judgment depending on the assessment made regarding risk of material misstatements in the financial statement. In conducting a risk assessment, we considered the internal controls that are relevant to the firm preparation of the financial statement that capture a true and fair value in order to generate the suitable audit procedures that are relevant to the prevailing circumstances. However, the evaluation is not conducted to issue an opinion on the effectiveness of the internal controls. Also, the audit process evaluated the appropriateness of the accounting policies, reasonableness of accounting estimates and overall presentation of the financial statements. Therefore, we are convinced that the audit evidence that was obtained is sufficient to form the base of our audit opinion.
Opinion
It is our opinion the financial statement gives a true and fair value and financial statements meet the expectation of the company’s act and international financial reporting standards.
Other Matters
The report is made with the sole purpose of being used by the members of the firm in accordance as per companies act requirement and other legal provision and for no other purpose. The auditor will not assume any responsibility to a third party due to this report.
The company Act does not require the auditor to issue a management letter. However, bet practices recommend that the auditor issues a management letter to the firm management with an outline of the internal control system strengths and weaknesses as well as material issues that arose during the review of the financial statement (Boritz and Wensley, 1996).
Sample Management Letter
In planning and performing the audit procedures on Procter and Gamble financial statement in accordance to the accepted standards and legal provisions, the audit team considered the internal control as a base to structure the audit plan design, procedure and procedure for the purpose of generating the audit opinion on the financial statement, but not, under any circumstance, express an opinion on the company internal control system.
However, during the process of conducting our audit, out audit team became aware of certain areas in your internal controls that can present an opportunity to improve on the company internal controls and operating efficiency. Unclassified network and information system was the most notable vulnerability in the controls. Our team noted the vulnerability mainly in department unclassified computer information system. The vulnerability exposes the company to malicious alteration if data and unauthorized processing of the same. The management of the firm should consider implementing policies and procedures to improve network and information system security.
Moreover, appendix A outlines other deficiencies and material weakness noted during the audit. Also, the document has recommended various measures that can be implemented to improve on the system.
We appreciate the professional and courteous assistance that your staff offered our audit team during the audit process. We will be glad to discuss and work together on the recommendation at any time.
References
Boritz, JE, and Wensley, AK.1996. CAPEX: a knowledge-based expert system for substantive audit planning. Princeton, N.J.: M. Wiener Publishers.
Cerson, S. 2008. Audit committees: a guide to good practice.. Melbourne, Vic.: Auditing and Assurance Standards Board ;.
Kagermann, H. 2008. Internal audit handbook management with the SAP-Audit Roadmap. Berlin: Springer.
Kumar, R, and Sharma, V. 2005. Auditing: principles and practice (Eastern economy ed.). New Delhi: Prentice-Hall of India /.
Moeller, RR. 2010. IT audit, control, and security. Hoboken, N.J.: Wiley.
Moeller, RR. 2013. Brink's modern internal auditing a common body of knowledge. Hoboken, N.J.: Wiley.
Pickett, KH. 2006. Audit planning a risk-based approach. Hoboken, N.J.: Wiley.
Rittenberg, LE, and Johnstone, KM. 2012. Auditing: a business risk approach (8th ed.). Melbourne, Vic.: South-Western Cengage Learning.
Roessing, RV. 2002. Auditing business continuity global best practices. Brookfield, Conn.: Rothstein Associates.
Russell, JP. 2005. The quality auditing handbook: principles, implementation, and use (3rd ed.). Milwaukee, Wis.: ASQ Quality Press.
