Page 98 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes Internal audit plan should cover areas such as:
1. Obtaining the knowledge of the legal and regulatory framework within which the
entity operates.
2. Obtaining the knowledge of the entity’s accounting and internal control systems
and policies.
3. Determining the effectiveness of the internal control procedures adopted by the
entity.
4. Determining the nature, timing and extent of procedures to be performed.
5. Identifying the activities warranting special focus based on the materiality and
criticality of such activities, and their overall effect on operations of the entity.
6. Identifying and allocating staff to the different activities to be undertaken.
7. Setting the time budget for each of the activities.
8. Identifying the reporting responsibilities.
The internal audit plan should also identify the benchmarks against which the actual
results of the activities, the actual time spent, the cost incurred would be measured.
The internal auditor should obtain a level of knowledge of the entity sufficient to enable
him to identify events, transactions, policies and practices that may have a significant
effect on the financial information.

The audit universe and the related audit plan should also reflect changes in the
management’s course of action, corporate objectives, etc. The internal auditor should
periodically, say half yearly, review the audit universe to identify any changes therein
and make necessary amendments, to make the audit plan responsive to those changes.
The establishment of such objectives should be based on the auditor’s knowledge of the
client’s business, especially a preliminary understanding and review of the risks and
controls associated with the activities forming the subject matter of the internal audit
engagement.
The internal auditor should also document the results of his preliminary review so
conducted.

For this purpose, the internal auditor should prepare an audit work schedule, detailing
aspects such as:
1. Activities/procedures to be performed;

2. Engagement team responsible for performing these activities/procedures; and
3. Time allocated to each of these activities/procedures.
While preparing the work schedule, the internal auditor should have regard to aspects
such as:
1. Any significant changes to the entity’s missions and objectives, business processes,
and management’s strategies to counter these changes, for example, changes in the
entity’s controls structure or changes in the risk assessment and management
structures
2. Any changes or proposed changes to the governance structure of the entity. The
engagement work schedule should, however, be flexible enough to accommodate

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