Conducting an audit is a highly tedious job. It comprises several steps, among which preparing an audit plan constitutes the first step. Simply put, it is a scheme comprising approaches and strategies adopted by an auditor while administering an audit.
To conduct an audit, the auditor must have the relevant evidence to complement his opinion. Collecting those pieces of evidence sets the stage for the administration of an audit. For that, the auditor must prepare a proper course of action outline. An audit plan serves as one of the tools to draft this working sketch.
- An audit plan is a detailed outline of the steps and procedures used to conduct an audit.
- The plan includes the objectives of the audit, the scope of the audit, and the criteria that will be used to evaluate the audit.
- The plan also identifies the resources needed to complete the audit and the timeline for each stage.
How is an Audit Plan prepared?
An audit plan is not merely a compilation of strategies. It is much more than that. Besides the guidelines and strategies, the audit plan comprises the nature, scope, date and time of an audit to be administered by the engagement team members to obtain relevant evidence. Furthermore, it includes an assessment of the risks involved in the audit.
To prepare a proper audit plan, the following five components must be taken into consideration:
1. Do Thorough Research on the Audit Area.
To begin with the audit, the auditor must first know and understand the area; he is going to audit. That is to say, he has to get familiar with the processes and functions of the enterprise he intends to audit. Accordingly, he must do thorough research by scrolling the internet for information, reviewing internal procedures and consulting field experts.
2. Keeping the Communication Channels open throughout the Planning Process.
Any audit is considered a daunting process by the auditees. Therefore, the auditors must keep their communication channels open to mitigate any apprehensions concerning an audit. Getting familiar with the auditee before starting an audit is always preferable. It helps get the cooperation of the organisation’s personnel being audited. Consequently, evidence collection becomes a more straightforward task.
3. Conduct an in-person interview and inspection with the auditee for evidence collection.
When it comes to evidence collection, an in-person inspection is always desirable. Exploring the concerned organisation personally helps the auditor gather information related to the organisation’s objectives, rules, regulations, size, nature, complexity, etc.
4. Assessing the risks in an organisation’s structures, processes or functions.
Identification and assessment of risks is a critical component of an auditing process. For that, the auditor needs to discuss with the auditee the risks encountered by the organisation to meet its objectives and the mechanisms employed to mitigate them. Following this, the auditor can rate the perils as per their impact and frequency and evaluate the control systems based on their risk mitigation potentials.
5. Acquiring all the relevant data before venturing into fieldwork.
Data analysis is the primary focus of any audit in contemporary times. The reason is that an early assessment of collected data gives a prior knowledge of the organisation’s potential weaknesses and risks before the beginning of the fieldwork.
Advantages of Audit Plan
The following are some of the significant advantages of an Audit Plan:
- It enables the auditor to understand the risk areas that must be specifically focused upon.
- The auditor can anticipate the possible problems he may face during the auditing process through an audit plan.
- It helps the auditor to chalk out his course of action for the aiding process. Consequently, a hassle-free and successful audit is conducted.
- It allows the auditees to get all their apprehensions regarding the audit mitigated.
Disadvantages of Audit Plan
Despite its various advantages, preparing an Audit Plan has its limitations. Some of the significant demerits of an audit plan include the following:
- It follows specific guidelines and patterns. Consequently, the creativity of the auditors is choked, and the entire process becomes too mechanical.
- Preparing an audit plan automates the entire auditing process, leaving little scope for the auditors to use their creativity and innovation. As a result, the auditors lack a sense of responsibility and duty.
Last Updated : 11 June, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.