AUDIT ENGAGEMENT AND DOCUMENTATION

Introduction: Audit procedures refer to the methodology adopted by an auditor in carrying out an audit assignment. Audit procedures have a very important role in the successful execution of an audit assignment. The most successful audits are those involving sound planning and those in which the auditee and the auditors have a constructive working environment. In a conducive environment, auditee, should understand what auditor has
been doing and why. Although every audit is unique, the audit process is similar for most engagements, and
normally consists of three stages: planning, executing and reporting.

Audit Plan
An audit plan is a step-by-step, methodical approach that enables auditors to focus on important areas under review. Audit Planning steps run the gamut, from engagement preparation and staff appointment to testing financial accounts and internal processes.

In order to ensure a high standard of performance, it is important that the auditor should prepare adequately for his work. Planning for an audit, just like every human endeavour, is essential for the smooth performance of the audit work and its successful completion. Planning ahead for an audit work will not only guarantee a valid audit opinion but will also help the auditor to ensure that:

(a) The audit objective is established and achieved;
(b) The audit is properly controlled and adequately directed at all stages;
(c) High risk and critical areas of the engagement are not omitted but that adequate attention is focused on these areas; and
(d) The work is completed economically and expeditiously, hence, saving on audit resources.

It is important to distinguish between an audit plan and audit planning memorandum. Audit plan relates to
preparations made by the auditor for one specific audit engagement while audit planning memorandum is a
standing arrangement made by the auditor for the continuing engagement of a particular client. Hence, an audit
plan is a plan for the audit of one client for one year while audit planning memorandum is a standing plan for the continuing audit of a client from year to year.

Points for Consideration in Audit Planning: Audit planning requires a high degree of discipline on the part of
the auditor. In order to make the planning more meaningful, the auditor should take into consideration the
following matters in relation to the audit engagement:

(a) Preliminary Work to be done in addition to the real audit work

This will include such matters as stocktaking, cash count, debtors’ circularisation and review of previous year’s
working papers. This will remind the auditor of those matters brought forward from the previous year and any
other points to be resolved in the current year or problems anticipated.

(b) Changes in legislation, accounting or any auditing standards or guidelines
The auditor should acquaint himself with all the changes that took place during the year in applicable legislation, accounting and auditing standard. This will help an auditor in carrying out the auditing assignment in away that meets the legislative requirement.

(c) Analytical review of available management accounts and other management information that relate to the accounts

This will assist in establishing valuable ratios and indicators that will guide the auditor. For instance, the computation of the gross profit percentage compared with that of the previous year will provide a good indicator to the auditor of the accuracy and reliability of sales and cost of sales.

(d) Changes in the business or management

The appointment of a new finance controller and the establishment of a new business line or the creation of a new branch are significant changes in the circumstances of the company which will necessitate changes in the
existing audit plans. There may be similary changes for which change may be required in audit plan.

(e) Changes in the accounting system

The introduction of computers such that when a company introduces significant changes in its operating procedures will require a review and evaluation of the system of internal control.

(f) Deadlines established for the submission of audit report
Where a client has set deadlines for its statutory activities such as the annual general meeting, it is important for the auditor to work in line with such programmes.

(g) Use of Rotational Testing and Verification

In practice, the auditor may not carry out a hundred percent testing or verification of the client’s transactions or
segments of the business. Where rotational testing or verification is adopted, it will be necessary for the auditor
to determine ahead of the date of the engagement which aspects of the business should be selected for testing
or verification. An example of rotational testing could be applied on the client’s branches to be visited.