In planning the audit of a new client the auditor should carry out the following procedures
- Carry out a preliminary review of the client. This will involve seeking to obtain a good understanding of the nature of the clients and the client’s business.
- Hold discussions with management to obtain an understanding of the management structure and a general feel of the current trading circumstances of the client and any factors that affect the client’s accounting and internal control system.
- Communicate with the previous auditor of the client and obtain all the information that is relevant to the audit of this new client. This would include any issues that arose from the previous audits that could have a continuing effect on the audit of this client.
- Seek to obtain a preliminary understanding of the nature of the clients accounting and internal control system. This will assist in determining whether the auditor could rely on the internal control system.
- Consider any accounting standards and legislation that could have an impact on the audit of this new client.
- The audit senior should check the nature and timing of reports and other communications with the client so that the audit plan accommodates such timings e.g. he should consider the dates of the annual general meeting, stock taking, dates when management reports are available.
- The audit senior should also determine the number of audit staff required, experience and special skills required and the timing of the audit visits.
- Prepare an audit planning memorandum that summarizes the scope of the work under the engagement and the strategy to be followed to meet the client’s needs.
How audit planning assists in the conduct of an audit
- It establishes the intended means of achieving the objectives of the audit. The plan lays out the strategy to be followed to ensure that the audit objectives as set out in the letter of engagement are met.
- It assists in the direction and control of the work. A good plan assists in the proper utilization of assistants and in the coordination of work done by other auditors and specialists.
- It helps to ensure that attention is devoted to important areas of the audit. The planning process identifies potential problematic areas. E.g. areas with weak internal controls where more detailed substantive testing should be carried out.
- It helps to ensure that audit work is completed expeditiously through more efficient use of time and proper allocation of work to audit staff.
- Ensures proper division of work between interim and final audit to avoid repetition of work already done.
- The audit plan takes into consideration times when information needed for audit purposes is available and when the client is not very busy. This encourages co-operation by ensuring less disruption of client’s work.
Direction and supervision
Direction involves giving audit assistants to whom work is delegated appropriate instructions/directions. This involves informing assistants of their responsibilities and the objectives of the procedures they are to perform. This also involves informing them of matters such as the nature of the entity’s business and possible accounting and auditing problems that may affect the nature, timing and extent of audit procedures to be performed.
- Monitoring the progress of the audit to consider whether assistants have the necessary skills and competence to carry out their assigned tasks.
- Establish whether assistants understand the audit instructions
- Ensure that work is being carried out in accordance with the overall audit plan and the audit program.
- To identify and address any significant accounting and auditing questions raised during the audit.
- Resolve any differences of professional judgment between personnel
Review and co-coordinating of work
This involves a review of the audit work performed by each staff member by a person of equal or higher competence, to consider whether;
- The work has been performed in accordance with the audit program
- The work performed and the results obtained have been adequately documented.
- All significant audit matters have been resolved or are reflected in audit conclusions.
- The objectives of the audit procedures have been achieved; and
- The conclusions expressed are consistent with the results of the work performed and support the audit opinion
Quality control refers to the various policies and procedures put in place by the auditor to ensure that all audits conducted by the firm meet the quality standards set by the accounting profession and the firm’s own quality standards.