Chapter 2AUDIT PROGRAM

Audit program Audit program can be defined as auditor’s plan of action indicating the work to be accomplished, the audit test and procedures to be followed, the persons responsible for the accomplishment of the work, and the time within which the work is to be accomplished.

Following are some authoritative definition:

An audit program is a detailed plan of the auditing work to be performed, specially the procedures to be followed in verification of each items in the financial statements and giving the estimated time required. Given by Meigs.

Cont.…

“An audit program is a list generally in detail of steps, to be performed in the course of an examination. It controls the nature, extent of examination, in arranging, timing and distributing the work, guard against the possible omission and duplication and provides part of evidence of work done”. Given by Montgomery.

“An audit program is a flexible planned procedure of examination”. Given by Halmes

Need and Purpose of Audit Program1. Describe in detail the work to be carried out and its objective.

2. Facilitate the prior approval of the planned steps.

3. Provides continuous control by means of comparison of actual with planned work.

4. Facilitate review of work done.

5. Provide evidence of work done according to Generally Accepted Auditing Standards.

Cont.6. Provides a basis for the planning of next year audit program.

7. Fixes responsibility of audit staff members for the work done.

Advantages of Audit Program

1. SUPERVISION OF WORK:

The auditor can judge the efficiency of his audit team with the help of audit program. He is in a position to know the progress of the work. He can see at any time that what part of the work has been completed and what remains to be done.

2. DIVISION / DISTRIBUTION OF AUDIT WORK:

The division of audit work is very useful for the audit staff for maintaining the difference of works among senior or junior clerks according to their ability and skill so that the work is divided to get better results

Cont..3. SYSTEMATIC UNIFORMITY OF WORK:

Audit program helps in settling all the things in advance, so the systematic uniformity of work helps the auditors to achieved the desire goals.

4. BASIC INSTRUMENT FOR TRAINING:

Audit program is in fact a training instruments for the audit staff and also very useful for the new auditors. It provides training and guidance to him. So it is rightly called the basic instrument for training for the staff at the time of need.

Cont..

5. PROOF FOR AUDIT WORK DONE:

The merit of audit program is that auditor can use it as proof for work done. In court of law the auditor can avoid liability for negligence. Audit program is a permanent record of an audit process. The audit program shows the work performed date-wise. In this way he cannot be held responsible for carelessness.

6. FIXATION OF RESPONSIBILITY:

Audit program fixes the responsibilities of the staff. If any error or fraud remains undetected, the responsibility of negligence will fall on that particular assistant who has performed that job and no one can blame on each other.

Cont..7. SEVERAL AUDIT MAY BE CONTROLLED:

The auditor can controls the audit of various companies at the same time. In the absence of audit program he cannot supervise them effectively.

8. EASY TRANSFER:

The principle auditor can transfer the audit work to any other person easily. If one assistant is unable to continue the work given to him it can be given to another person. Audit program guides him that what is done and what is remaining.

Cont..

9. FINAL REVIEW:

Before signing the report, final Review is made and for this purpose audit program is very useful that any deficiency or missing in steps can be identified and completed.

10. USEFUL FOR FUTURE:

The audit program is very useful in the future. Or completion of an audit, it serves the purpose of audit record that may be useful for future reference. In case if auditor is appointed for the same concern in any future time the auditor can use the same audit program with some changes.

Cont..

11. AUDIT STAFF NEEDED:

Audit program is helpful to determine the number of persons needed to do the work. The staff requirement is essential for every auditor. The shortage of staff means slow progress. The exact number of senior and junior audit clerk can be determined. In this way an auditor is able to handle the audit work properly.

12. TIMETABLE:

The benefit of audit program is that work is completed with in stated time period, the saving of time means saving of labor. The saving of time means saving can control the cost of audit due to fixed time.

Disadvantages of Audit Program

1. Rigidness

It may create rigidity in audit examination if not frequently reviewed and updated

2. No Initiative

It kills the initiative of capable persons, audit staff may not have opportunity of showing independent thinking, intelligence and initiative due to adherence to audit program.

3. Too Mechanical

Such audit program is mechanical that it ignores many other aspects like internal control.

Cont..4. New Problems Over Looked

With the passage of time new problems arise which may be over looked.

5. Audit Program Increases The Chance Of Fraud

Staffs of the client get information about the audit program in advance which increases the chance of committing frauds. Similarly, it harasses the audit staffs so they perform the work of audit carelessly which also increases the chance of committing frauds.

Steps to be taken to overcome the disadvantages i.) The principal must explain his assistants the objectives for which a particular aspect is performed. It would make the work more interesting to the assistants.

ii.) Periodical review and closed supervision would eliminate all inefficiencies in assistants.

iii.) The assistants must be encouraged to come out with valuable suggestions and such suggestions must be duly considered.

iv.) The audit program must be periodically reviewed and amended whenever necessary. This will not allow the program to become rigid or obsolete.

Types of Audit program

1. Standard Audit ProgramThis type of audit program is preprinted and suitable for all purposes. It saves time and gives added assurance that no important procedure will be overlooked while in the opinion of some others, this type of audit program is too much mechanical. Due to complexities in the business conditions, system of accounting and internal control system, it is not possible to follow a standard audit program.

Modified standard Audit program

These type of audit programs contains the usual audit procedures, common to most businesses and provide space for other specific procedures applicable to the business under examination. This modification of the audit steps and the insertion of the steps that are peculiar to the audit in questions, make the audit program a modified standard audit program.

Tailor-made Audit Program

This is individually written program prepared specially for each audit. It is known as tailor made because a tailor cuts the cloth according to the body of every person. The auditor should take care of such a program so that no important steps is overlooked or missed. It lists the procedures to be followed on any specific engagement, indicating any departure from normal practices and specifying the extent of the test of transaction.

Audit Program with check list

Some Auditors prepare their own program and in addition carry a more or less extensive check list of auditing procedures form which they select those which the think are most applicable.

Construction of an Audit program or Preparing of an Audit Program Construction of an audit program is an important job to be performed by an

auditor. Program construction consist of selection of those procedures which will apply in the given situation at hand and in determining the time at which they should be performed and the extent of their application.

A sound understanding of the audit techniques is the first essentiality in program construction. In addition the auditor must have familiarity with the business practices.

Cont.. Finally a number of other factors influence the selection of specific auditing

procedures. The auditor must :

a. Stay within the scope and limitation of his assignment.

b. Obtain the best evidence reasonable as possible.

c. Consider all possibilities of errors.

d. Apply only those tests and procedures that are useful to accomplish the verification purpose in that specific situation.

a. Effect of Audit Assignment

An auditor can do no more than he is permitted to do by the terns of the assignment.

The scope of management therefore is matter of agreement between the auditor and the company whose records are to be examined.

The auditor must confine himself to what the agreement calls, any unnecessary work takes additional time which means additional cost

b. Obtain Best Evidence possible

An auditor must attempt to obtain the best evidence possible in every case. If the procedures in the given situation do not provide completely reliable evidence then he must supplement the results with the other tests until he satisfied that he has collected all the possible evidence.

But because of consideration of cost and time it is not always possible to select the best one, however a less than best evidence may be accepted, if it gives satisfactory evidence.

c. Consider all possibilities of Errors

A well constructed audit program will include procedures that immediately detect errors that fall within the scope of the examination and which internal control situations indicates, might otherwise go undiscovered.

This require a sound knowledge of all types and possibilities of errors.

d. Use applicable procedures Most difficult part of the program development is

drafting of general procedures to the requirement of the specific situation.

The auditor must know what the company transacts, with whom it transacts, who maintains the accounts and what controls are in existence to eliminate or reduce the possibilities of errors.

The review of internal control and construction of audit program go hand to hand and must be closely related.

co-ordination of Procedures Various procedures used by an auditor should be properly co-ordinated. This is

done in the following manner:

a. The auditor must organize all the steps to be performed, so that he is sure that no important steps is omitted and he can effect the necessary coordination among the members of the audit team

b. A well conceived audit program is a real help in achieving coordination and avoiding duplication.

Cont..c. The program must be written in such a way as to tell an inexperience exactly what is required to do.

d. The program should state clearly, definitely and concisely that what is to be done.