Here is a brief outline of administrative audit planning activities that normally should be part of a planning document. The Planning Document is a vehicle for guiding planning activities and the engagement team’s brainstorming meeting. A standardized format ensures uniformity of the planning activities among engagements and provides executives assurance that the in-charge has considered all aspects of planning.
The Planning Document can be presented to the executive during or after the engagement team meeting or, to save time, a draft can be submitted in advance for the executive’s reading. During the meeting, changes in information or approaches can be reflected in the document for the executive’s final approval before fieldwork begins. Creating the planning document on a word-processing template will facilitate its revision and completion.
I. ENGAGEMENT ADMINISTRATION:
A. Delivery of Engagement Letter:
The engagement letter is one of our primary tools for obtaining client understanding of their responsibilities and ours. A good understanding before the engagement begins will prevent misunderstandings from arising later. To accomplish a good understanding, the engagement executive should deliver the letter and discuss its contents with the client’s CEO or owner. Discussion of the letter with the client’s owner or manager, president, superintendent or director should be one of the primary sources for discovering potential misstatements, fraud or illegal acts.
B. Use of Client Assistance or Paraprofessionals:
We should use client assistance to the maximum extent possible on every engagement. When client personnel are unavailable, we should consider firm paraprofessionals to perform accounting services and clerical work in connection with the engagement. (See Possible Client Assistance at end of this section)
C. Planning for Proper Workspace:
The engagement in-charge has responsibility to arrange adequate workspace before the fieldwork begins. Poor lighting, lack of adequate heat or air conditioning, desks or tables that are too small or work locations that are not near client accounting personnel are examples of situations that hinder the efficient completion of an engagement and that should be avoided.
D. Assignment of Staff Personnel:
A basic element of a good quality control system is assigning personnel to engagements and tasks that are commensurate with their capabilities. A primary audit response to risk at the financial statement level is also assigning experienced staff persons to the high-risk area or providing more supervision to lesser experienced persons. Assigning the right people to engagements also helps complete the engagements in the minimum amount of time. SQCS No. 7, and SQCS No. 8 (effective January 1, 2012), requires CPA firm documentation of this element of quality control.
E. Target Dates:
Setting target dates during planning is the first step to achieving timely engagement completion. These target dates should also become the input to the firm’s staff scheduling system.
F. Use of Specialists:
We should consider using outside specialists whenever we perform any auditing procedures in circumstances outside our firm expertise. Such circumstances may include actuarial computations for pension funds, questions of law, observations of inventories of products or materials, required tests of client accounting software, and complex accounting and auditing problem situations. When the auditor out sources any services in connection with an engagement, the engagement letter should contain a paragraph notifying the client. The auditor is also required to obtain a confidentiality agreement from the person or organization performing out sourced services.
G. Electronic Auditing Opportunities:
Trial balance and financial statement preparation software, electronic practice aids, file container software, spreadsheets, word processing software, document scanners and data extraction software should be used to the maximum extent possible on all engagements. This section should list the specific, planned applications for discussion with the engagement executive.
H. Audit Budgets:
The audit budget should be prepared during engagement planning. The budget should be based on circumstances, not fees. The budget should be summarized here for discussion with the executive.
For more information on effective engagement planning, my live webcasts and self-study courses can be accessed by clicking the applicable box on the left side of my home page, www.cpafirmsupport.com.