Increasing Audit Profits Series No. 21—Getting Your Audit Planning in Order
While I realize we are in a dynamic profession and work schedules change frequently, I also know there are great benefits to an orderly approach to audit planning. Planning activities deferred will surface during engagement performance or, worse, during the wrap-up phase of the engagement. Perhaps the greatest benefit to orderly planning is that these activities performed at their opportune times ALWAYS take less time to complete. Performed out of order, the time charges will be higher and the pressure greater!
Following is a summary of an optimum order for audit planning:
1. Preplanning meeting of in-charge accountant and engagement leader to discuss any current client developments and tentative audit strategy.
2. Review prior year’s working papers and reports.
3. Perform client continuance evaluation.
4. Assess risk of material misstatement at the financial statement level.
5. Prepare, deliver and discuss engagement letter.
6. Update client information forms and internal control documentation.
7. Perform and document systems walk-through procedures.
8. Perform tests of controls if needed to reduce risk of material misstatement to a low level or to offset significant control deficiencies.
9. Read general ledger account activity and perform other analytical procedures.
10. Assess risk of material misstatement at the assertion or account classification level.
11. Determine tolerable misstatement and the lower limit for individually significant items at the financial statement and account classification levels.
12. Plan a strategy not to sample or plan sampling applications.
13. Prepare time budget.
14. Hold engagement team planning and brainstorming meeting.
15. Prepare a planning document.
In the next blog I’ll discuss some of the pitfalls of getting planning out of order. In the meantime, my on-demand webcast entitled Organizing, Performing and Controlling the Work illustrates the benefits of an orderly approach to planning. You can download a syllabus and register by clicking on the applicable box on the left side of my home page, www.cpafirmsupport.com.