An audit plan is a planned plan to guide the audit process, making it more focused, systematic, and comprehensive. Although not yet part of the audit process, this process is crucial for auditors to consider. This planning can determine the success of the audit assignment.
An audit plan is a process that begins with understanding, identifying, and assessing the company's financial performance. It not only helps the company present accurate financial reports but also detects fraud early. This allows the company to maintain its business continuity.
Understanding Audit Plans
An audit plan is an audit plan prepared by an auditor. This process is the first stage in a series of audit processes.
The things formulated in the audit plan are objectives, scope, risks, resources, schedule, budget, audit process and procedure design, and the audit members involved.
So, the audit plan can also be referred to as a basic plan for compiling a more detailed audit program.
Difference between Audit Plan and Audit Program
An audit plan is generally conducted before the audit program is formulated. Here are some differences between the two.
- Purpose – the audit plan outlines the overall goals and objectives of the audit. The audit program outlines the specific steps and procedures to be taken. auditor..
- Scope – The audit plan describes the scope of the audit and the areas and transactions to be examined. The audit program details the specific procedures to be used to test those areas and transactions.
- Execution time – The audit plan is conducted during the planning phase. This phase typically takes longer because it outlines the overall audit strategy. A program audit, on the other hand, is conducted during the execution phase and is shorter in duration.
- Flexibility – the audit plan can be adjusted as the audit is being conducted. The audit program is less likely to be changed because it consists of detailed and specific procedures.
- Format – the audit plan contains the basic design, while the audit program contains the details.
- Recipient of audit results – an audit plan is created for management and stakeholders. An audit program is created for the audit team and other internal parties.
Function and Role of Audit Plan in Audit Process
The function and role of an audit plan extends beyond helping auditors ensure each audit stage is conducted systematically, efficiently, and in accordance with applicable standards. Here are some of the roles and functions of an audit plan:
- Allocation of time and resources is more optimal, so that companies can avoid waste.
- Potential risks can be identified early on and solutions can be designed appropriately.
- An audit plan serves as an effective coordination tool. Companies can ensure all team members are working toward the same goal.
- An audit plan is an important piece of documentation. Its presence demonstrates that the audit has been conducted professionally and systematically.
- Support the audit process which is faster, because all stages have been carefully planned.
- Avoiding legal problems in the future, because the audit plan can be a parameter of quality standards and compliance with existing regulations.
- Supports the identification and remediation of weaknesses in internal control.
- Supports the identification of the most risky areas and inefficiencies, so companies can save costs.
- The audit plan provides valuable information to management, so that the company can make more appropriate and effective decisions.
- Increase stakeholder trust, such as customers and investors.
Audit Plan Preparation Stages
1. Conducting Initial Client Assessment Procedures
The first stage of the audit plan is the client assessment stage to see whether a particular client is suitable and safe to be accepted, so that the assignment can be continued.
Things that are done at this stage are discussing the background of the client company, the ethical requirements that the client company has, communication with previous auditors, the need for experts in certain fields, selection of members. audit team, and a letter of agreement between the two parties.
2. Gaining an Understanding of the Audit Process with the Client
Next, the auditor and client understand each other's roles and responsibilities in the audit process, as well as the provisions in the letter of agreement.
3. Develop an Audit Strategy
The third step in the audit plan is for the auditor to develop an audit strategy to address the risks of misstatement in financial reporting. The audit strategy includes the following elements.
- Characteristics related to the audit process, such as the reporting framework used.
- Reporting date
- Materiality level
- Risk assessment and decision making to assess the effectiveness of internal controls.
- Plan for utilization of available resources
4. Selecting Audit Team Members
The selection parameters for audit team members are competencies relevant to the client company. Furthermore, audit team members must also have an understanding of professional standards and the accounting code of ethics. The audit team consists of a chairperson, partners, senior audit staff, and junior audit staff.
5. Consider Using Expert Assistance
During the audit planning process, the audit team may also consider utilizing specific expertise outside of accounting. Not all company risks, transactions, and activities can be adequately assessed using accounting expertise alone. Therefore, the audit team may utilize experts from IT, tax, environmental, engineering, and other fields.
6. Understand the Client's Business Environment Conditions
Next, the auditor understands the client's business activities. This stage is a critical part of the risk assessment process, as each industry and company has different risks of misstatement.
The business environment encompasses the company's internal and external economic conditions, financial reporting regulations, and the impact of business competencies. The results of the risk assessment are then used to determine how much audit evidence should be obtained.
7. Risk Assessment
After gaining a sufficient understanding of the client's business, the auditor assesses the current risks to the client's business. Risk assessment is generally conducted by identifying the effectiveness of internal control implementation based on the audit framework. Committee of Sponsoring Organizations of Treadway Commission (COSO).
8. Performing Analytical Procedures
According to ISA 520, International Auditing Standards, analytical procedures are the evaluation of financial information through the identification of financial and non-financial data and the investigation of fluctuations or inconsistent relationships.
At this stage, the auditor must compare the client's financial statements with the company's and auditor's expectations, the client's financial ratios or trends with similar companies, and trends in increases or decreases in accounts between periods.
Audit Plan Example
To get a clear illustration of the audit plan, here is an example of its preparation at PT SKN.
- Performing client assessment procedures – the auditor stated that the company had a good track record and there were no indications of significant legal violations, so the auditor decided to accept the audit assignment.
- Gaining an understanding of the audit process with the client – the auditor understands the business processes and audit flow, explains the audit scope, evidence collection methods, audit schedule, and the responsibilities of each party.
- Developing an audit strategy – auditors develop audit strategies for revenue accounts, accounts receivable, and intangible assets.
- Selecting audit team members – the auditor selects 1 audit partner as the main person in charge, 1 audit manager, 2 audit seniors, and 1 audit junior.
- Considering the use of expert assistance – auditors use IT experts to help assess system security, digital asset recognition, and information technology risks that impact financial statements.
- Understand the client's business environment conditions – auditors study the level of competition, data protection regulations, and rapid technological developments.
- Risk assessment – the auditor identifies risks of material misstatement, such as the risk of inappropriate revenue recognition, bad debts, and misvaluation of intangible assets.
- Performing analytical procedures – the auditor compares the realization of revenue with the company budget, PT SKN's financial ratios with similar companies, as well as revenue and cost trends compared with the previous period.
Closing
Planning is the primary foundation of any audit process, including the preparation of an audit plan. Auditors are required not only to master accounting aspects but also to be able to design a well-thought-out and focused audit plan.
With the right audit plan, the audit process can be more effective and strengthen public confidence in the audit results. To optimize the audit process from the planning stage to monitoring, use Audithink audit application.
This software This audit is designed using risk as a parameter for subsequent audit planning, enabling auditors to focus on the most critical areas and deliver higher audit quality. Schedule an app demo now or contact the Audithink team to help customize it to your needs.
