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What is Audit Program | Definition Meaning Purpose Advantages

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Audit Program: 

        Audit program is a list of work done by an auditor different author has defined as in different ways;

Audit program definition

Professor Meigs says that

          “Audit program is a detailed plan of audit work to be performed, specifying the procedure to be followed in verification of each item in the financial statement and giving the estimated time required”.

Howard F Settler: says that

       “Audit program is an outline of all procedures to be followed in order to arrive at an opinion concerning a client’s work financial statements”. 

Meaning of Audit Program:

            Audit program are lists of audit procedures to be performed by audit staff in order to obtain sufficient appropriate evidence.

Explain Audit Program:

Audit Program is prepared by an Auditor or his team. audit program is a list of procedures which is to be performed by Audit staff when they go for audit.

Purpose of Audit Programs. 

 A set of instructions to the audit team

  • Assist with planning and performance of the audit.
  • A means to control and record the proper execution of the audit work and also to review the audit work.
  • A record of the audit procedures to be adopted, the audit objectives, timing, sample size and basis of selection of each criteria.
  •  Audit evidence to support the auditor opinion.

Types of Audit program

  1. Standardized audit programs.

Is a pre-prepared listing of objectives and tests which may be used in any audit.
A consistent approach to all audits. Reduce risks that procedures are omitted.
 

  1. Tailored audit programs

Some audit programs need to be tailored to the specific circumstances of an engagement as all clients are different. The design of the audit procedures to be followed match exactly to the actual system of the entity. Reference can be made specifically to particular procedures/documents.

audit program
audit program

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How Audit program is Prepared:

In preparing Audit Program the following should be given to attention:

  1. Scope and duties of an auditor.(you may also read scope of audit)
  2. Books of original entry, ledger and system of book keeping.
  3. System of internal check.
  4. Special provision in the legal documents affecting the auditor’s duties.
  5. General nature and routine of the business.

        The scope of the contents of the audit program covers all the routine checking and vouching.

Audit program Contents:

The following contents or audit plan, are used in Audit Program; or we can say things To Be Included in Audit Programs

1.   Name:

        The audit program contains the name of client the auditor can write the name of business there is need of complete address of the concern in case of public limited company.

2.   Objectives:

        It contains the objectives of the business enterprise. There are various objects of nay business unit a small business have few objects while large companies have many objects.

3.   Duration:

        It contains the time limit of stating and completing audit work the duration of audit period may be one month.

4.   Date:

        It contains the date of stat of an audit the auditor can consult the client before fixing the audit date it must be convent to the management .It shows the details of audit work date wise.

5.   Accounting system:

        It contains the information about accounting system .the auditor can examine the accounting system and procedure in operation the understanding of accounting system helps to develop the audit program.

 6. Internal check:

        The audit program contains the notes about the effectiveness of internal check system. The effective internal check is helpful for auditor. He can apply test checking due to proper internal check system if the system is not good it increases the duties of audit staff.

7. Old Reports:

        It keeps the contents of old audit report. The auditor can pay full attention to old reports the weakness reported in previous reports must not be repeated in present accounting record it is the duty of the audit staff to the performance of management.

8.   Checking Books:

        It contain the detail of checking  accounting books the number of books kept in stated in the program the books are distributed among audit clerk so that whole data may be examined.

Importance of Audit Program

Advantages of Audit Program :

1.   Audit work progress:

    It is helpful to note the progress of audit work. The adjustment is made if there is more work and less time and vice versa, in this way work can be completed in time.

2.   Transfer of audit clerks:

    It is useful for auditor to transfer the work of auditor to another clerk in case of emergency any audit clerk can go on leave. The auditor can ask another audit Clerk to count the work of the first clerk.

 3.   Audit staff supervision:

    It is beneficial for auditor. He can supervise the activates of audit staff the can use the audit program as basis of supervision. Every part of audit work can be competed as per schedule. He can control the activities of audit staff through observation and direction when the audit work is going on.

4.   Need of audit staff:

    It is helpful to determine the number of person needed to do the work. The staff requirement is essential for every auditor. The shortage of staff means slow progress the exact number of senior and junior audit clerks can be determined. In this way an auditor is able to bundle the audit work properly.

5.   Other advantages:

    The other advantages are workload distributed, completion of work on time, guidance from senior auditor, work completed on time, negligence control, junior auditor may trained.

Disadvantages of Audit Program :

If audit program is not properly check out it will give the following disadvantage.

1.   Suitability:

    It is not suitable for small business concern because they keep a few books of accounts

2.   No revision:

            It need revision due to shrinking size of business concern. The revision of audit program is not possible the working of audit staff is affected due to rigid program.

3.   Accounting staff tricks:

        The auditor applies various methods for checking accounting books accounting staff can play trick in recording transaction after having knowledge of auditing. It discloses all details of audit work.

Downloads

  • Audit program template
  • Audit program template
  • Audit program template excel
  • Procurement audit progra
  • specimen of audit program

What is Audit Engagement Letter

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Audit Engagement Letter is the letter which is sent by the auditor to his client (Business) for avoiding any misunderstanding in collection with the conduct of audit.

What is Audit Engagement Letter:

  Before the starting of audit of a business the auditor sent a letter to management for avoiding any misunderstanding in collection with the conduct of Audit this letter is known as “Audit Engagement Letter”.

The nature of Audit Engagement Letter may vary from business to business client to client.

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Audit Engagement Letter points are stated in ISA-2:

audit engagement letter
Audit Engagement Letter

1.   Objective:

        The first point of Audit Engagement Letter stated in ISA-2  is Objective of the Audit.The auditor must inquire from the management about the objective of the audit of financial statement of the business.

2.   Scope:

          The 2nd point of Audit Engagement Letter stated in ISA-2  is Scope of the Audit.The auditor asks through the audit engagement letter from the management about the scope of work in detailed for performing his audit work.

 3.   Responsibilities:

        The auditor should know him management responsibilities for the final information which will be required by him by the course of audit he should know the extent of the obligation of the concern paper for fixing the responsibility.

 4.   Confirmation:

        The auditor also needs the confirmation of the audit engagement for the current year.

5.   Statements:

        The auditor must obtain the list of the concerned management staff responsibilities for keeping and mentioning the accounting records. So the responsibilities in case deduction of error and irregularities in the accounting records may be easily find.

6.   Access:

        The auditor usually obtains for management the limit of access to the records comments and other info related to the audit process.

7.   Planning:

        The auditor should inquire about the attaining regarding the .

8.   Acknowledgement:

        The auditor places the request in the letter to the management for the drawn by acknowledging the receipt of engagement letter the management is bound to do so otherwise the audit wall not be helped responsible for the same.

9.   Fee:

        The auditor inquires about the nodes and basis on which fee are computed the procedure and arrangement of other bulling related to the audit work during the process of conduct of audit.

10.Expert Involvement :

          If in some cases technical advice is required and expert are involved the surety of their management and procedure or who will manage the same.

11. Internal Auditors:

              If the internal auditor or other staff is needed by the auditor, their arrangement and procedure of their availability.

 12. Legal Requirement:

           The last point of Audit Engagement Letter is legal requirement. Any other legal requirement in connection with audit or any legal provision which may affect the work of audit.

Preparation Before Commencement of Audit

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Commencement of Audit

        Commencement of audit  means that  when an organization is going to start final audit
before commencement of audit the following instruction must be given by the auditor to his client.

  1. A list of book in use, list of employees, their duties and internal control should be provided to the audit staff.
  2. Books of original entry, ledgers, trial balance and Final account should be provided to the auditor.
  3. All supporting document should be properly arranged.
  4. List and schedule of assets and liabilities should be arranged properly for the examination to the audit staff managed properly for the examination to the audit staff.

        The auditor of the newly established company should also carry out the following primary work before commencing the audit.

Commencement of Audit
Commencement of Audit

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1.   Appointment of the auditor:

   The auditor can examine his appointment the shareholder have right to appoint an auditor .a copy of resolution shows the decision of management for appointment.

2.   Previous auditor:

   The auditor can write a letter to old auditor for obtaining his consent. He must have no objection to such appointment. it is moral duty of new auditor to inform old auditor for appointment.

3.   Time of Audit:

   The audit can consult the management for fixing time of audit the stating data is fixed with the consent of management. The time allocated utilized for proper audit work.

 4.   Time required:

   The auditor can decide the time required for completion of audit work he can engage sufficient audit clerks to complete work in time otherwise the cost of audit increases.

5.   Audit staff:

   The auditor can arrange audit staff on the basis of work load. The number of audit Clerks can be engaged on the basis of audit work. There should be no extra burden of work on audit staff.

6.   Audit duties:

   The auditor cannot fix audit duties such duties are usually stated in audit engagement letter. The duties stated in company’s ordinance cannot be overlooked.

7.   Nature of business:

   The auditor can check the nature of business. The nature may relate to manufacturing, trading or services. The auditor must know the nature of activities in order to conduct audit.

8.   Business History:

   The auditor should record the history of business. He can record year of establishment nature and number of products available in market.

9.   Types of product:

   The business may produce different products of successful working. One product or service is not sufficient to compete in the market the auditor should note the types of product.

10.  List of officers:

   The auditor can ask for list of officer their duties and specimens signature he must know authority and responsibility of officer.it is essential for completion of audit work.

 11. Copies of documents:

   The auditor can collect copies of document like memorandum of association and articles of association. He can examine all such document for the purpose of audit.

12. Books of account:

   The auditor can obtain lists of books of account he can check that legal requirement are followed in preparing books of account.

13. Internal control:

              The internal control system is tested to rely on it. Audit sampling is possible if it is effective the business work flow under proper accounting and administrative control.

14. Certificates of clients:

             The auditor can obtain certificate from client, the confirmation of accounts from debtors and creditor is possible. The client can issue stock valuation certificate for the auditor.

15.   Old reports:

   The auditor should examine old audit report. he can note the weakness stated in previous report he can check that weak point stated in old report are net repeated during this year.

16. Analytical review:

           The auditor can check the ration and percentage for a number of years he can examine the trend of various items in order to note the usual items.

17. Prepare report:

          The auditor can prepare report for work done by him. When he is fully satisfied there is clean report. In case of bad working he can submit qualified report to the shareholders.

What are the 3 Types of Audits

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Types of Audits :

There are many types of Audits but here we will discuss the basic three audit types are as follow:

1.   Final Audit

2.   Interim Audit

3.   Continuous Audit

Types of Audits methodology will discuss one by one.

types of audit
types of audit

1.   Final Audit:

        It is a types of Audits also known as periodic audit or complete audit or balance sheet audit. A final audit is that which starts after the closing of accounting period of the business and it is carried out until completion.

        This is the most satisfactory types of audits from auditor’s point of view and is usually adopted where practicable particular in the case of small concern however in the large business a final audit is rarely applicable.

        According to the companies ordinance the desired procedure for and auditor is to conduct an audit is final audit it is also called “complete audit” because t is conducted after the completion of accounting books and no transaction is allowed to entreat the end of financial year it is called “periodic audit” because it Is conducted after the completion of accounting period it is also called “Balance Sheet” audit because when the balance sheet is prepared completely it is conducted.

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Advantage of Final Audit:

The advantages are as follow:

1.   Facts:

    All the information related with the books of accounts are supplied to the auditor with the facts relating to the year ended as an auditor can carry out his work with the help of full fact provided to him without any break through.

2.   Work continuity:

    The auditor will leave the work until and unless the audit is completed and moreover the final audit is conducted once in financial year therefore the work of management as well as the auditor not influenced.

3.Annual reports:

    It very easy for the auditor to complete their work and report and present to the shareholders as easy as possible.

4.   Less chances of alteration:

    In this types of audits there is  less chances of manipulation and alteration of figures they have been checked.

Disadvantages of Final Audit:

the disadvantages of this types of Audits are;

1.Alteration of figures:  

    There is possibility of alteration in figures either ignorantly or deliberately after they have been checked by an auditor.

    In this way error or frauds cannot be detected without further rechecking.

 2.Expensive:

    This type  is comparatively more expensive as the auditor takes several visits to perform his work.

Interim Audit:

    The 2nd types of audits it refers to and audit conducted on a particular date with in an accounting period it lies midway between final audits and continues audit.

    LR Howard Defines interim audit as “this is when an audit is conducted to a particular date within the accounting period is called interim audit.

    It is not the usual way of audit it is just for exceptional cases where need arises. The purpose of interim auditing may be the declaration of interim dividend by a public limited company or in case of partnership when new partner want to come in or go out.

    An audit which is take place between the two annual audits to find out the interim audit it is some in the particular period of the year.

Advantages of Interim Audit:

1.   Interim dividend:

        It is conducted to declare interim dividend the management can prepare the interim account for dividend purpose the shareholders feel satisfaction over the business concern.

2.   Location of fraud:

        In this types of audits fraud can be located due to interim audit the time between compiling and checking account is very short the location of fraud is possible as sufficient time is not given to employees.

Disadvantages of Interim Audit:

1.   Figures alteration:

    The limitation  is that the accounting staff can alter figures after the completion of audit.it creates confusion in the minds of audit’s staff at the time of final audit.

2.Expensive:

    The limitation of interim audit is that it increases the business expenses such audit is not computing it is optional for management and so audit fee is an extra expense for business.

Continuous Audit:

   The 3rd Types of audits  is also called “Detailed” or “Running Audit”.

              It means that continues audit continues in the whole financial year final audit starts when financial year ends but continues audit is completely reverse the accounting process continues and side by side the audit is also done.

             Under such types of audits the auditor has to visit the business house at interval during the financial ear the interval may be for a month a week or for some days so the process of auditing is continuous audit.

             It depends upon the volume of organization and the matters of the business however there is no prescribed rule for the auditor that he follow the rule of time strictly usual the regular interval are follow.

             LR Howard says that continues audit work is conducted throughout the course of financial year but is not taken at a specific accounting period as interim audit.

Advantages Continuous Audit :

The advantages of this types of audits are;

1.Easy rectification of errors :

  As basis are checked soon after the entry has been passes, errors can be spotlighted as we as rectified quickly.

2.Special attention:

  In this types of audits Before the finalization of accounts an auditor has sufficient time to give pepper attention for checking the account defects and locates the errors made intentionally.

Disadvantages Continuous Audit :

The disadvantages of this type of Audit are;

1.   Figures Alteration :

      There is possibility of alteration in figures either ignorantly or deliberately after they have been checked by auditor. In this way errors or fraud cannot be detected without further rechecking.

2.   Inconvenience:

      The frequent visits by an auditor and his frequent checking may dislocate his client so work and cause inconvenience to him the thread of work is also likely to be lost.

Audit Procedures and Techniques

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Audit Procedures and Techniques:

Audit Procedures means the way of doing Audit, the techniques which use during the audit.

Audit Procedures

The Audit Procedures is operated by the following procedures.

1.  Record’s Examination:

        This Audit procedure is commonly used by the auditors. The inspection of books and documents is made to verify the validity of data.

2. Compliance:

        The second audit procedures/techniques  is compliance

Audit Procedures and Techniques
Audit Procedures and Techniques

to check the arithmetical accuracy of accounting record, the balancing accounts can be compared with the vouchers to test the reliability of data.

 

 

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3.  Ticking:  

        The third audit procedures/techniques are Ticking, means the policy if the work against an entry in books of accounts to show that it has been examined by the audit various arks are used for addition, posting calling, forward and balance etc.

        Ticking is generally done with indelible pencil, although some auditors also use pen and ink for this purpose.

4.  Casting:

        Casting means the checking of addition and financial statements .This job is generally done by junior audit staff. Most auditors used mechanical instruments for this purpose.

5.  Calling Over:

        Calling over means the completion of entries in a book with its supporting documents or vouchers .This job is done by two clerks one reading the item to the other clerk pronunciation is necessary to distinguish between some words like these 31-40, 45-65 etc

6.  Vouching:

       Vouching is very important audit procedures / techniques  The act of vouching consist of checking the documentary evidence (cash memo, bills, invoices) as should establish. The accuracy and truthfulness of the entries appearing in the books of accounts and in those cases where it is not so, the matter are noted or discussion and if the auditors still remains unsatisfied, the outstanding  are reported to the client.

7.  Verification:

        When an auditor has vouched the entries appearing in the books of accounts his duty is not thereby fly discharged if appointed for audit under the act he has to report whether or not the balance sheet exhibits a true and correct view of the state of affairs of the company for this purpose he should satisfy himself on the following points.

  1. The each asset and liability is correctly valued and correctly stated in the balance sheet.
  2. That the actually existed at the date of the balance sheet.
  3. That they are properly of the business.
  4. That they are not suffering from a charge except that disclosed in the balance sheet.

    The Audit Procedures/techniques carried out to achieve the forgoing objective are known as “verification”.

6. Reporting:

            After the above steps, the auditor is required to bring to the knowledge of his clients what he has come across during the process of auditing.