Develop the Audit Plan :
SA 300, “Planning an Audit of Financial Statements” deals with the auditor’s responsibility to plan an audit of financial statements in an effective
manner. It requires the involvement of all the key members of the engagement team while planning an audit. Before starting the planning of an audit, the auditor must perform the procedures as defined under SA 220, “Quality Control for an Audit of Financial Statements” for reviewing the ethical and independence requirements. In addition to this, the auditor is also required to comply with the requirements of SA 210, “Agreeing the Terms of Audit Engagements”.
The auditor must establish overall audit strategy for developing an audit plan for the bank’s financial statements as a whole, and at the assertion level for classes of transactions, account balances, and disclosures. To be efficient, the auditor must plan his audit by considering the inter-relationships amongst the various risk assessment procedures, planned control-reliance strategy, planned substantive procedures, and at the assertion level for classes of transactions, account balances, and disclosures so as to avoid unnecessary duplication of effort. This can further be summarised by preparing an audit planning memorandum detailing the various activities to be performed by an auditor while conducting an audit of a bank. The audit plan documents the nature, timing and extent of the planned audit procedures.
Ordinarily, to develop the audit plan the auditor would need to gather more detailed information about the bank and its environment, which will enable him to plan his audit procedures for each significant account balances and disclosure. The requisite detailed information may be obtained from the following:
Understanding of the bank, its environment and the bank’s internal control;
Understanding the bank’s accounting process;
Reading the minutes of various committees of the bank;
Reading the Annual Financial Inspection for the prior year(s);
Performing a preliminary analytical review;
Assessment of risk at the assertion level;
Planning a Control-Reliance Strategy ;
Planning substantive procedures;
In case of identified misstatements, obtaining reasonable assurance from the substantive procedures;
Consideration of expectations and concerns of management, which could impact the timing of the audit procedures. In some cases, management may request the auditor to perform audit procedures on specific areas (e.g., controls) so as to provide assurance on the design, implementation, and
operating effectiveness of those specific areas;
Work performed by internal auditors;
Statutory or other legal and regulatory requirements;
Using the work of an expert;
Specific assertion level risks for classes of transactions, account balances,
disclosures and audit procedures based on overall engagement risk;
Impact of multiple locations, subsidiaries and associates on audit procedures;
Consideration of the nature, timing, and extent of audit procedures required under SA 540, “Auditing Accounting Estimates, Including Fair Value
Accounting Estimates, and Related Disclosures” for fair value measurements and disclosures; and
Consideration of appropriateness of going concern assumptions.
The auditor could use the information gathered above to develop an effective audit plan that will appropriately respond to identified risks, and would also help in providing the necessary level of assurance.
When developing audit plan for an initial audit engagement, the auditor should consider the nature, timing, and extent of audit procedures that will need to be performed on the opening balances, as well as their effect on the current year’s audit procedures if the auditor is unable to obtain sufficient appropriate audit evidence supporting the opening balances. In this regard, the auditor is also required to perform the procedures as given in SA 510, “Initial Audit Engagements-Opening Balances”.
In developing the audit plan, the auditor should ordinarily document the following:
The overall audit strategy;
Any significant changes made during the audit engagement to the overall audit strategy or the audit plan, and the reasons for such changes;
Decisions impacting the nature, timing, and extent of audit procedures; and
Audit plan, including any significant changes made during the audit engagement.