Failing to Plan the Audit Strategy and Audit Plan
Over the last decade or so, particularly on small audits, I’ve approached most engagements with a minimum of planning. I’ve obtained the client’s year end trial balance, read the general ledger and requested the client to prepare certain schedules and pull invoices and other documents for my inspection.
Then I updated my internal control documentation and other practice aids, performed certain risk assessment procedures by making inquiries of client personnel and set about to work my way down the trial balance by performing detailed tests of balances. When I finished this process, I read and modified a standard tests of balances program as my quality control review.
You may be asking, “What is wrong with this approach.” My answer is that nothing is wrong with it, provided the audit is very small and you are a sole practitioner performing a single person audit. I am a sole practitioner and most of my audits have been under 100 hours.
As the number of audit hours increase, and as we add the variable of staff assistants performing some or most of the work, planning the audit strategy and the audit plan is crucial for both quality and efficiency purposes. Without proper planning and supervision, inexperienced staff assistants will usually follow a standard audit program to the letter! Not only is excessive work likely, the working paper review time will probably skyrocket! A well-thought-out audit strategy and an audit plan tailored to engagement circumstances not only enhances engagement efficiency, it can provide on-the-job training for assistants that will improve their future performance.
Failing to Plan Audit Documentation
Here are few negative effects of not planning engagement documentation.
• Staff personnel will ordinarily use the SALY method. While this may seem expedient on small audits, the results may be performing procedures that are not necessary in the current year or not performing procedures that are necessary.
• Because it may be assumed that the risks of misstatement are the same as the prior year, the engagement team may fail to ask about and evaluate changes in policies, personnel or procedures. The result may be overlooking potential misstatements due to error or fraud.
• Assuming circumstances are unchanged may cause deterioration of an auditor’s professional skepticism.
• Planning activities and their documentation may be cursory and routine. Forms may be filled out in the same way as the prior year. Audit programs will likely be standard and unmodified. In short, more work will usually be performed than necessary; more costly review will be required.
• Professional standards may require changes in certain audit documentation which could result in a substandard engagement.
Planning audit documentation requires all engagement personnel to think about the unique circumstances of each engagement. A primary defense against errors or fraud occurring and going undetected is the thinking and reasoning skills of engagement personnel. Routine, same as last year, audit procedures and documentation endanger engagement quality and provide little opportunity for staff growth and development.
You can obtain more information about the positive results of proper planning from my live or on-demand webcast entitled Eliminating Wasted Time During Engagement Wrap-up. Syllabuses for this and other webcasts can be obtained by clicking the applicable box on the left side of my home page, www.cpafirmsupport.com.