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Good Audit Planning Is Halfway to a Successful Audit


2017-10-10

At the starting point of any audit project, auditors should bear in mind the importance of audit planning. Proper audit planning serves as the crucial first step to mitigate any significant audit risks through accounting for any “what-ifs”. By drawing up the right and considerations, audit planning helps improve the efficiency and effectiveness of audit planning. PKF Hong Kong illustrates just how through the following principles.

1

Kickstart the audit with a destination in mind

Stephen R. Covey’s book The 7 Habits of Highly Effective People reminds us to “begin with the end in mind.” As such, auditors should begin their process with a clear and proper destination.

Auditors are responsible for preparing a risk assessment for the clients as the first step. They obtain the recurrent financial statements from clients to realize their internal control circumstances, such as pretty cash, invoices, and sales order in the purchasing department. They become interpreters of their clients’ financial information, ranging from a bank loan to window dressing.

Management factors are also key considerations in the risk assessment. For example, we ask: Are there any policy changes under the new appointments? Human resources could greatly affect the financial direction and approach of any company. The report will show the overall financial risks, evaluated by their significance: high, normal or low.

2

Obtain a definitive and thorough understanding of the client

Auditors do not need to know every bit of information about their clients; they are only required to obtain a definitive and thorough understanding of their processes. This is why fraud cases, as fractures of the process, matter over other types of information. Other types of watch-outs include third-party transactions or long-term loan agreements.

3

Select an appropriate approach

The previous 2 stages of reviewing give hints of appropriate audit planning directions. Following that, auditors should make sure which audit approach is suitable for our clients to optimize the audit process.

There are two main types of audit approach—internal control testing and testing of details. Normally, listed corporations prefer to adopt a mixed model to test different parts of details. Private companies mainly use testing of details, as the financial statements are not complicated.

4

Avoid the usual pitfalls and mistakes

Indeed, auditors can alleviate overload. As auditors can be up to their neck in paperwork, they should pick up the smarter ways of working.

Think flexibly. A junior may complain about performing useless procedures year after year. However, why shouldn’t he or she question the logic of following senseless rules? Auditors are appreciated when wrong procedures are uncovered in order to keep themselves—and their clients—on the straight and narrow. After all, that is their job.

5

Pay attention to fluctuations

In order to be effective, one must be proactive. Auditors should be alert to any variations in their clients’ business. For example, they may review the fluctuation of management account to plan the right audit procedures. If the company has a great growth rate of sales profits this year, some questions should be raised in order to uncover deeper issues.

6

The essentialness of audit planning

As the old saying goes, “A small leak will sink a great ship.” Each company has the obligation to an audit, no matter its size. Auditors must gravely consider each of these principles to predict potential risks. PKF Hong Kong insists their auditors utilize the most effective method for audit planning—resulting in utmost efficiency.