Page 100 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes Other areas in relation to audit planning include: Setting materiality and assessing audit
risk and inherent risk; Understanding internal control and assessing control risk; Gathering
information to assess fraud risks; and Developing an audit plan
To ensure efficient and effective conduct of audit assignment, audit programmes or audit
programs are used. Audit programme contains step by step instructions to be carried out
by team members i.e. it is simply a list of audit procedures to be executed by team
members.

In pursuit of this goal, an audit institution should establish policies, systems and procedures
that will encourage actions leading to high quality and discourage or prevent actions that
might impair quality.
5.17 Keywords

Audit Planning is developing an overall strategy for the audit. The nature, extent, and timing of
planning vary with size and complexity of the entity, experience with the entity, and knowledge
of the entity’s business.
Audit program contains step by step instructions to be carried out by team members i.e. it is
simply a list of audit procedures to be executed by team members.
Audit risk is the risk that an auditor may give an inappropriate audit opinion on financial
statements that are materially misstated.

5.18 Review Questions

1. What do you understand by audit planning? What is the purpose and methodology of
audit planning?
2. What do you understand by obtaining an understanding with the client?
3. What factors are considered by an auditor in understanding client’s business and industry?
4. Why transactions with related parties are important to auditors? Write its implications.

5. Why assessing audit risk and inherent risk is an essential part of audit planning? Elaborate
with suitable example.
6. Identify different factors affecting audit planning.
7. What is audit programming? What is its importance in developing audit planning
strategies?
8. What do you understand by quality control for audit? Why quality is considered on
higher priority basis for any prime audit institution?
Answers: Self Assessment

1. Helps the auditor obtain sufficient appropriate evidence for the circumstances; keep audit
costs at a reasonable level; avoid misunderstandings with the client

2. Client acceptance and continuance
3. ISQC 1
4. Engagement letter
5. The objective, scope, and report of the audit) by who (the staff) and for how much (the fee)

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