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STAGES OF AN AUDIT

1. Statutory and ethical consideration.

2. Approach or recognition with the new client company.

a. Audit risk assessment

b. Materiality assessment

c. Identifying audit objectives

3. Ethical clearance from previous auditor.

4. Letter of engagement and acknowledgement from client.

5. The audit work.

a. Designing audit programs.

b. Scheduling the audit work and assigning the audit staff

The chronology of audit work


Although all audits will have precisely the same objective, it is nevertheless true that the detailed
manner in which the audit is conducted will largely depend upon the size and circumstance of the
client concerned.
In the auditors operational standards the following five essential phases are highlighted:

1. The auditors should adequately plan, control, evaluate, and record their work. Adequate planning
includes investigating a prospective client before deciding whether to accept the engagement. Audit
work is to be adequately planned and assistants if any to be properly supervised.

2. The auditor should ascertain the enterprises system of recording and processing transactions and
assess its appropriateness as a basis for the preparation of financial statements.

3. The auditor should obtain appropriate, relevant and reliable audit evidence sufficient to enable
him to draw reasonable conclusions there from.

4. If the auditor wishes to place reliance on any internal controls he should ascertain and evaluate
those controls and perform compliance tests on the operations.

5. The auditor should carry out such a review of the financial statements as is sufficient in
conjunctions with conclusions drawn from other audit evidence obtained to give him a reasonable
basis for his opinion on the financial statements.

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AUDIT PLANNING

IS Standard 050 (Planning) states, The IT auditor should plan the information systems audit coverage
to address the audit objectives and comply with applicable laws and professional auditing standards.

Audit planning as the means of developing a general strategy and a detailed approach for the
expected nature, timing and extent of the audit. Planning helps the auditor to obtain a detailed
understanding of the client and its environment, develop an overall audit strategy to be able to
gather appropriate relevant and reliable evidence and also assess the risk of the material
misstatement on the financial statement.
The audit plan details the audit objectives and steps the auditor must take to ensure all of the
important issues in the audit are covered. The audit plan includes:

The auditor understanding of the client


Potential audit risks

A basic framework for how the audit resources (budgeted audit hours) are to be allocated
throughout the audit
Audit procedures to be performed

The objective of the audit plan is to assist the auditor in conducting an effective and efficient audit.
While planning the audit work to meet the audit objectives, the auditor should identify relevant
control objectives and determine, based on materiality, which controls should be examined. Internal
control objectives are placed by management and identifies what the management strives to achieve
through their internal controls.

Where financial transactions are not processed, the following identifies some measures the auditor
should consider when assessing materiality:

Criticality of the business processes supported by the system or operation.


Cost of the system or operation (hardware, software, third-party services)
Potential cost of errors.
Number of accesses/transactions/inquiries processed per period.
Penalties for failure to comply with legal and contractual requirements.

A planning memo outlines for the auditor the tone and course of action the IT audit manager plans to
take. The memo outlines for the auditor the areas within the audit the auditor is planning to spend
most of their time, and it gives the auditor the opportunity to voice any concerns.

Importance of planning

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a. It enables the auditor to conduct an effective audit, in an efficient and timely manner as it ensures
that appropriate attention is devoted to important areas of the audit and also potential problems are
promptly identified and the work completed on time (Time management)

b.Planning assists in proper utilization of audit assistants and coordinating and assigning work to be
done i.e. knowing when, how and by whom to perform a specific task and the standard expectation.

c.Planning assists in coordination of work done by other auditors and experts such as asset valuers.

d.Planning enables the auditor to acquire sufficient knowledge of the client business so that he can
evaluate the reasonableness of both accounting estimates and management representation and to
make judgment regarding the appropriateness to the accounting policies and disclosures.

e.Planning act as a basis of self evaluation i.e. by dividing audit work into stages and one will be able
to know what is covered and what is not.

Factors affecting planning

(i)Size and complexity of the organization - Organizations with many branch divisions, subsidiaries etc
or have complex and multiple transactions will make planning a difficult task.

(ii) Depth of coverage of the audit - Where the auditor has to perform in-depth audit, he should spent
more time to plan as compared to an audit where sampling will be used as a means of gathering
evidence.

(iii) Auditors experience with the entity and the knowledge of the business - Planning for a new client
takes more time as compared to planning for recurring audits.

KNOWLEDGE OF THE BUSINESS


This enables the auditor to have or obtain the knowledge of the business sufficient to enable him to
identify and understand events, transactions and practices that in the auditors judgment may have a
significant effect on the financial statements or on the audit report. An understanding of the client
and its environment encompasses the following:-

i. The nature of the client including the clients application of the accounting policy

ii. Process for procurement, storing and management of raw materials.

iii. Process used to take order and deliver goods.

iv. Acquisition and maintenance of human resources.

Knowledge of the business includes the following:

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i.The general economic factors and the industrial conditions affecting the entitys business.

a. The competitive nature of the business

b. Supplier and customer relationship

c. SWOT analysis

ii. The client objectives and strategies and also the related business risk

iii. The methods used by the client to measure and review performance.

iv.The clients internal control

a. Get the reasonable assurance about the internal controls of the company

b. Is it to have a reliable financial reporting framework which is efficient and effective


way of minimizing material misstatement in the financial statements

v.The general level of competence of management