Back to: Auditing
Hello, great students!
How are you doing today? I hope you’ve revised our last class about the role of the auditor. If you remember, we said one of their main jobs is to plan the audit before starting. Today, we will focus fully on that planning part and the process of beginning an audit, which is called audit engagement. Let’s go into it – with our biro in one hand and jotter in the other!
Lesson Objectives:
By the end of this lesson, students should be able to:
Explain what audit planning means.
List the steps involved in audit planning.
Describe what an audit engagement is.
Understand what is contained in an audit engagement letter.
Audit Planning and Engagement
What is Audit Planning?
Audit planning means preparing for the audit work before starting it. Just like when you are travelling, you must plan what to pack, when to leave, and how to move. Auditors must also prepare their tools, strategy, and focus areas.
The aim is to make the audit smooth, organised, and effective.
Why is Planning Important?
To save time and resources
To focus on important or risky areas
To know what and who to check
To prevent surprises or mistakes
To help teamwork if there are many auditors involved
Steps in Audit Planning:
Here are the major steps the auditor follows when planning:
1. Understanding the Client’s Business:
This includes knowing the industry, how the business runs, what products or services they offer, and their accounting system.
2. Setting Audit Objectives:
The auditor decides the goals of the audit. For example: “To confirm that the company’s revenue figures are correct.”
3. Identifying Risk Areas:
Auditors check which parts of the business may have errors or fraud. These are called high-risk areas.
4. Preparing Audit Programme:
This is like a to-do list. It contains what will be audited, how it will be audited, and who will audit each part.
5. Arranging Staff and Tools:
If it is a big job, the audit team is formed and given duties. Tools like laptops, calculators, and templates are also arranged.
Audit Engagement
Before the audit begins, there must be an agreement between the auditor and the client. This is called audit engagement. It tells both sides what to expect.
The auditor sends an audit engagement letter, which the client must sign. This letter makes things official.
Contents of an Audit Engagement Letter:
Name of the client and auditor
Objectives of the audit
The duties of the auditor
The responsibilities of the client
The date the audit will start
Payment (audit fees)
Confirmation that the auditor will follow auditing standards
Example for Better Understanding:
If a bakery hires an auditor, the first step is not to jump into checking receipts. The auditor must first understand how the bakery operates, what kind of sales they do, and which parts may have mistakes. Then they send an engagement letter before beginning any work.
Summary of Lesson:
Audit planning helps the auditor to prepare and do the job well. It involves understanding the business, setting goals, and preparing a clear programme. The audit engagement makes the job official and shows the agreement between both parties. The engagement letter is the written proof.
Evaluation:
What is audit planning?
Why is planning important in auditing? (Give two reasons)
Mention any three steps in audit planning.
What is an audit engagement letter?
List four things included in an engagement letter.
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