AUDIT PLAN :
An audit plan lays out the strategies to be followed to conduct an audit. It includes the nature, timing and extent of audit procedures to be performed by the engagement team members. The auditor shall develop an audit plan while considering the following:
(a) The nature, timing and extent of planned risk assessment procedures.
(b) The nature, timing and extent of audit procedures at the assertion level.
(c) Other planned audit procedures that are required to be carried out so that the engagement complies with Standard on Auditing (SA).
The objective of the auditor is to plan the audit so that it will be performed in an effective manner.
The auditor should consider the following matters before planning for an audit:
(i) Terms of Engagement and any Statutory Responsibilities: While framing an audit plan auditor should ascertain his terms of appointment and responsibilities cast by various legislations on him. The auditor should then prepare his audit plan based on what he is required to do.
(ii) Nature and Timing of Report or other Communications: Auditor should determine the form and the timing of the report. This will help auditor in determining the scope and time schedule of the audit.
(iii) Accounting Policies followed by the Enterprise and Change in those Policies: Accounting policies followed by the enterprise affect the audit plan. While preparing an audit plan due consideration may be given to the areas where there is any change in accounting policies.
(iv) Effect of New Accounting or Auditing Requirements: Any change in accounting and auditing standards may affect the scope of audit or the manner in which it is conducted. Therefore these should be carefully considered while drawing up the audit plan.
(v) Identification of Significant Audit Areas: It is important for the auditor to identify the areas which involves greater audit risk, so that the audit can be planned in such a way that overall audit risk will be less. More risky areas should be checked in detail and vice-versa.
(vi) Setting of Materiality Levels for Audit Purposes: At the planning stage the auditor sets the materiality levels. For example the auditor may decide that in the case of audit of sales he will examine all sales transactions above Rs.5000.
(vii) Degree of Reliance Expected to be placed on Accounting System and Internal Control: While laying down an audit plan the auditor shall assess the effectiveness of accounting systems and internal controls. On the basis of assessment, the auditor has to decide whether he will do test checking or more extensive checking of transaction and balances.
(viii) Nature and Extent of Audit Evidence: The nature and extent of audit evidence will vary in different auditing situations. For example in one situation the auditor may rely more on physical examination, confirmation from third parties whereas in another situation he may rely more on examination of documentary evidence.
(ix) Work of Internal Auditors: Statutory auditor has to review the work done by the internal auditors to determine the extent of reliance they can place on. It will help the auditor in determining the scope of work under the audit plan.
(x) Establishing and Coordinating Staffing Requirements: Auditor shall determine the exact requirements of the staff along with the broad estimate of time required by each staff members. So that the audit work will be completed on time.