Audit Process:

Planning Stage
 AS 2101:
Audit Planning
Audit Process
The audit process is similar for most engagements and normally
consists of four stages: Planning (sometimes called Survey or
Preliminary Review), Fieldwork, Audit Report, and Follow-up Review.
Client involvement is critical at each stage of the audit process. As in
any special project, an audit results in a certain amount of time being
diverted from your department's usual routine. One of the key
objectives is to minimize this time and avoid disrupting ongoing
activities.
Audit Objective
 The objective of the auditor is to plan the audit so that the audit is
conducted effectively.

Responsibility of the Engagement Partner for Planning

The engagement partner is responsible for the engagement and its performance.
Accordingly, the engagement partner is responsible for planning the audit and may seek
assistance from appropriate engagement team members in fulfilling this responsibility.
Engagement team members who assist the engagement partner with audit planning also
should comply with the relevant requirements in this standard.
Planning an Audit
Planning the audit includes establishing the overall audit strategy
for the engagement and developing an audit plan, which includes, in
particular, planned risk assessment procedures and planned
responses to the risks of material misstatement. Planning is not a
discrete phase of an audit but, rather, a continual and iterative
process that might begin shortly after (or in connection with) the
completion of the previous audit and continues until the completion of
the current audit.
During the planning portion of the audit, the auditor notifies the
client of the audit, discusses the scope and objectives of the
examination in a formal meeting with organization management,
gathers information on important processes, evaluates existing
controls, and plans the remaining audit steps.
Preliminary Engagement Activities
The auditor should perform the following activities at the beginning of the
audit:
a. Perform procedures regarding the continuance of the client relationship
and the specific audit engagement,
b. Determine compliance with independence and ethics requirements,
and
Note:   The determination of compliance with independence and ethics
requirements is not limited to preliminary engagement activities and should
be re-evaluated with changes in circumstances.
c. Establish an understanding of the terms of the audit engagement with
the audit committee in accordance with AS 1301, Communications with
Audit Committees.
Phase 1: Planning……
Stages in Planning of Audit
1. Engagement
This could be a request from the authority or a routine audit.
• Appointment of audit team: The appointed team (by Audit Executive)
should do the following:
 Conduct team first meeting
 Document preparations for audit
 Set engagement objectives (audit objective)
 Determine the scope of audit.
Phase 1: Planning……
2. Conduct in office review
 Review documents (criteria) related to the client (laws, regulations, guideline etc.)
Advantages of in-office review
 Gain good understanding of the client
 Help to establish audit risk and materiality of issues (relevant criteria).
 Help to identify criteria and establish compliance requirements
 Clarify audit objectives (operating objectives).
 Enable the team to prepare relevant questions to the client during entrance
meeting.
 Help the team to understand well the criteria (what is to be done; by whom and
when).
Phase 1: Planning….
3. Contact and meeting client
 Clients needs to be notified on the audit at least 5 (five) working days before
entrance meeting.
 Notification should be formal (eg. Engagement letter)
*Contents of engagement letter
 Letter reference
 Date of letter Source of audit (Annual plan, Management request etc.)
 General audit objective
 Names of audit team and team leader
 Official contacts of team leader
 Time and location of entrance.
Phase 1: Planning….
4. Entrance Conference
 Should be conducted prior to preliminary survey
 Head of Internal audit should meet with key personnel of the client
 Points to be discussed in entrance meeting
 Scope and objective of audit
 Emphasize that the purpose of audit is to add value to the organization.
 Determine who will be the contract person from the client (it should not be
the director or person of too high level).
 Brief overview of the process from preliminary survey to reporting.
 Tentative audit event timeline estimated dates of fieldwork, interim meeting,
exit meeting, audit report (draft and final) and follow-up audits.
Entrance Conference……
 How audit findings will be handled (resolution of minor findings; agreement on the
action plan to implement the audit recommendations etc.)
 Collective review of draft report.
 Method of distribution of final audit report.
 Identification of areas of special concern by client (Note: Do not get involved in
functional or operational activities of the client).
 Working hours, access to records, available work area, clients work deadline
requirements (i.e. Auditor should fit into the clients office routine with minimal
disruption to client).
 Arrange for tour of the facility for familiarization.
 Arrangement for auditors to meet other personnel who will be working with during
audit.
Note: Effective Communication at the beginning of audit engagement will significantly
influence the atmosphere in which the entire audit is conducted.
Phase 1: Planning…..
5. Preliminary survey
This refers to the process for gathering information without detailed verification on
the activity being examined (audited)
Why Preliminary Survey
 To understand well the activity under review.
 Identify significant areas that worth special emphasis.
 Obtain relevant information for use in actual audit.
 Determine whether further audit is necessary (nature, timing and extent of
detailed audit work).
Note: i) No fieldwork should be started unless preliminary survey has been
conducted.
Survey work may be more extensive for activities that are audited for the first
time than for areas that were audited previously.
Phases of Preliminary Survey…..
i. Familiarization
 Obtaining significant back ground information and practical
working knowledge of applicable laws, regulations policies, and
procedures, management and financial controls, organizations
statues and staffing; and unusual challenges faced.
 Documents to be reviewed includes; previous audit
reports/programs, working papers, laws, regulations, operating
manuals, organization charts, financial statements, flow charts,
budget, operating reports etc.
Phases of Preliminary Survey…..
ii) Identification Of Potential Areas For Improvement

Identifying areas for audit emphasis (risk area). These include:

 Areas identified/documented in risk. Register.
 Area of high possibility of fraud or mismanagement
 Where there is large volumes of transactions.
 Where management has expressed concerns.
 Where prior audit disclosed major weakness/deficiencies.
Phases of Preliminary Survey…..
iii) Confirmation: Getting evidences from third parties where
necessary.
(iv)Planning the detailed audit
 Preparation of audit program in areas that worth for further audit
 Audit program should be recorded
 It basically show, what is to be done; by when; by who; for how
long and how will it be done.
 This is a link between preliminary survey and field work.
Announcement Letter: The client is informed of the audit
through an announcement or engagement letter from the
Internal Audit Director.

Initial Meeting: the client describes the unit or system to be

reviewed, the organization, available resources (personnel,
facilities, equipment, funds), and other relevant information.

Preliminary Survey: In this phase the auditor gather relevant

information about the unit in order to obtain a general overview
of operations.

Internal Control Review: The auditor will review the unit's

internal control structure, a process which is usually time-
consuming.
Audit Strategy
 The auditor should establish an overall audit strategy that sets the scope, timing,
and direction of the audit and guides the development of the audit plan.
 In establishing the overall audit strategy, the auditor should take into account:
a. The reporting objectives of the engagement and the nature of the
communications required by PCAOB standards,
b. The factors that are significant in directing the activities of the engagement
team,
c. The results of preliminary engagement activities and the auditor's
evaluation of the important matters in accordance with paragraph .07 of this
standard, and
d. The nature, timing, and extent of resources necessary to perform the
engagement.
Audit Plan
The auditor should develop and document an audit plan that includes
a description of:
a. The planned nature, timing, and extent of the risk assessment
procedures;
b. The planned nature, timing, and extent of tests of controls and
substantive procedures; and
c. Other planned audit procedures required to be performed so
that the engagement complies with standards.
Changes During the Course of the Audit
The auditor should modify the overall audit strategy and the audit
plan as necessary if circumstances change significantly during the
course of the audit, including changes due to a revised assessment
of the risks of material misstatement or the discovery of a previously
unidentified risk of material misstatement.
Persons with Specialized Skill or Knowledge
 The auditor should determine whether specialized skill or knowledge is needed to perform
appropriate risk assessments, plan or perform audit procedures, or evaluate audit results.

 If a person with specialized skill or knowledge employed or engaged by the auditor

participates in the audit, the auditor should have sufficient knowledge of the subject matter to
be addressed by such a person to enable the auditor to:

1. Communicate the objectives of that person's work;

2. Determine whether that person's procedures meet the auditor's objectives; and
3. Evaluate the results of that person's procedures as they relate to the nature, timing, and
extent of other planned audit procedures and the effects on the auditor's report.
Additional Considerations in Initial Audits
The auditor should undertake the following activities before starting
an initial audit:
a. Perform procedures regarding the acceptance of the client
relationship and the specific audit engagement; and
b. Communicate with the predecessor auditor in situations in which
there has been a change of auditors in accordance with AS
2610, Initial Audits—Communications Between Predecessor and
Successor Auditors.
The purpose and objective of planning the audit are the same for an initial audit or
a recurring audit engagement. However, for an initial audit, the auditor should
determine the additional planning activities necessary to establish an appropriate
audit strategy and audit plan, including determining the audit procedures necessary
to obtain sufficient appropriate audit evidence regarding the opening balances
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