RAA Papers

1. Introduction

Planning is a process of determining in advance what to do, when to do, how to do and who is to do. Audit planning involves the development of an overall strategy based on the understanding of the organization being audited, the environment in which it operates; the possible lines of enquiry and the kinds of information that should be gathered for the identified areas of audit. It integrates the various aspects of auditing task, which is aimed at achieving the primary objective of the Royal Audit Authority i.e.. Enhancing the government accountability. The Planning also optimizes the transfer of knowledge from one audit to another, with minimal cost and disruption to the audit entity.

Each and every audit must be adequately planned. Planning the audit includes understanding the audit entity, determining the audit objectives, the audit scope, timing, audit criteria, methodology to be used and resources required. All audit plans must be written and documented for approval by the appropriate authorities.

The auditor should acquire the knowledge and understanding of the organization and its operational activities and the circumstances under which it is operating. The knowledge and the understanding help in the identification of line of audit enquiry, determination of audit areas and audit objectives.

The audit objective is the central theme, which the particular audit is to accomplish. For example, objective in the audit of Financial Statements is to verify the accuracy and reliability of financial data and express an opinion whether financial statements present fairly the financial position, results of operation and cash flows in conformity with the Generally Accepted Accounting Practices.

Audit objectives can be determined through either and or any one or more of the following:

Audit scope is the area or the extent to be covered in audit. It is also the basis on which the audit is conducted. A clear determination and statement of the scope of audit acts as a defence for the auditor in case of any misunderstanding or allegation that the auditor had or had not covered certain aspects of audit.

Audit scope is aimed at achieving the audit objectives. The scope of audit is mentioned in the audit communication as an indication of the extent of coverage and to act as a defence for the auditor in case of any misunderstanding or allegation that the auditor has not covered certain aspects of audit.

Timing means the period to be covered in audit, commencement date of audit, how long it will take, and when is the final report expected etc. Milestones and deadlines shall be specified. The audit timing could be generated from the AIMS.

Audit criteria are standards against which performance is compared to assess the deviations. For instance, the Government approved rates of mileage for various types of vehicles are the criteria for any mileage claims. The auditors are required to identify audit criteria suitable to the circumstances, by which to evaluate the matters subject to audit. Audit criteria can be set either and or from:

Audit methodology means the methods and techniques used for performing audit procedures and in gathering data and documentation of audit evidence as a basis for opinions and conclusions. For example the methodology used in confirming the existence of inventories is observing physical count and inspection. A few of the methodologies used by auditors are:

2.7 Resources:

Resources mean the money, time, number and mix of audit staff that may be required to complete a particular audit. A combination of size and sensitivity of the organization determine the resource requirements, the period of audit, the audit scope and such other factors.

3. Advantages of Audit Planning

Audit planning is a continuous process and must continue throughout the audit. A properly drawn-up audit plan helps in the efficient and effective conduct of audit. Some of the main advantages of audit planning are:

Audit planning helps in ensuring that adequate attention is devoted to important areas of the audit.

The auditor while planning an audit must consider all aspects of audit, such that all the important aspects are adequately covered. If an audit is not planned adequately, it is likely that some important aspects are overlooked or are paid inadequate attention.

Audit planning helps in identifying potential problems.

While preparing an audit plan, the auditor can perceive some problems, which may arise during the audit. This helps in planning suitable action to overcome such problems.

Audit planning helps in ensuring that the audit work is completed expeditiously.

Taking various aspects of audit into consideration, the auditor can plan his audit procedures in such a manner that the audit can be completed on a timely basis, eliminating unproductive efforts.

Planning helps in utilising the staff properly.

Planning helps the auditor in determining what audit procedures are to be performed in achieving the audit objectives. He can, thus, allocate various aspects of audit to his assistants in a judicious manner. It can facilitate the auditor in ensuring that work performed by his assistants is adequate for his purpose by reviewing their work and also enable him in carrying out proper supervision of his staff.

Audit planning helps achieve intended audit objectives.

Audit planning helps to determine what areas should covered in audit, what audit procedures are required to be performed to achieve the audit objectives.

Audit planning acts as a direction.

Audit planning acts as a direction for auditors in the planning, conducting and reporting of an audit assignment.

4. Planning process

Usually the planning processes involves gaining knowledge and understanding of the entity, determining the lines of audit enquiry, setting of audit objectives and preparing detailed audit procedures and consider how audit results will be reported. The planning at the Royal Audit Authority may be carried out at different levels involving a variety of processes. The main planning can be segregated at three different levels as under:

Planning at the Audit Team level;
Planning at Audit Division level; and
Planning at the organization wide (RAA) level.

5. Planning process at the Audit Team Level

The planning process at the Audit Team level is the most important as the teams are solely responsible for the execution of audit. Inappropriate planning at the team level will result in inefficient and ineffective audit of the agencies affecting the primary objective of the Royal Audit Authority. Accordingly all audit members including the Audit Supervisor should be actively involved along with the Audit Team Leader in the audit planning process of the designated audit of the entity. The audit planning at the team level involves three phases, namely:

Preparation of Work Plan of the Audit Team
Over view of the agency to be audited
Developing a detailed audit procedures

5.1 Preparation of Work Plan of the Audit Team

Each Audit Team Leader will prepare a work plan of the Audit Team in the beginning of the Financial Year in accordance with the area of responsibility and jurisdiction and evaluation of the previous years performance. The work plan should be supportive of the work programs and commitments of the Audit Division and in line with the audit thrust and priorities set by the Auditor General to accomplish the Development plan of the Royal Audit authority. Sample of the Audit Teams Work Plan is annexed as Form No. 1.

5.2 Over view of the agency to be audited

As mentioned earlier it is very important that auditors have sufficient knowledge of the agency to be audited and the circumstances under which it is operating, because such information might have significant impact on the financial information, on the audit procedures, or on the audit report. During the Overview Phase gaining sufficient understanding of the agency, identification of matters of potential significance and development of possible lines of audit enquiry are carried out by the Audit Team.

5.2.1 Gaining sufficient understanding of the agency.

Audit Divisions will maintain permanent files on each Auditee agency with records such as mandates, organizational charts, plan documents, important agreements, budget outlays, year end financial statements and such other important documents relevant to the operations of the agency. The Audit Team should review this file along with other documents to gain sufficient knowledge and understanding of the agency to be audited in the Royal Audit Authority itself. The Audit Team Leader will ensure that all the audit members have common understanding on the objectives and the purposes of the audit of the agency by carrying out the following reviews:

Review of past audit reports
Review of mandates of the agency
Review of present operations
Review of Government policies and programmes on the agency
Review of Financial allocations and operation
Review of minutes of the meetings and publications
Other important documents

The Audit Team as an output of the above reviews carried out should prepare and submit the following documents for review:

Synopses of the understanding of the mandate, planed activities
operational trends,
Financial outlays and expenditure summaries etc.
Consolidated summary statement of collection and deposits
List of matters of potential significance which will be considered during the present audit

Review statement of past audit reports and audit follow-up actions

During the review if sufficient information is not available within the Division, the Audit Team may visit the audit agency and gather above information. The above reports should be submitted and reviewed by the Division Chief.

5.2.2 Identification of matters of potential significance

The list of matters of potential significance prepared as an output of the reviews should be further analyzed by the Audit Team Leader considering the potential audit risk, materiality, thrust areas, constraints, availability of time and such other considerations. In any auditing situation some audit areas involve greater audit risk than others. It is, therefore, important that audit areas involving greater audit risk be identified so that special attention can be paid during the audit execution phase. For instance, in the audit of constructions one potential audit risk/thrust area would be the preparation and payment of muster roll. There are possibilities that false names could be included in the muster roll and payments could be made to non-existing persons.

In order to come to proper assessment of potential audit risks, the Audit Team leader may carryout the following tasks:

Interview of some of the senior agency personnel (management)
Review of internal controls and accounting practices etc.
Review of policies and procedures manual
Such other reviews as felt essential

The refined list of matters of potential significance along with the possible impacts should be submitted to the Division Chief for approval of possible areas of line of audit enquiry. Besides, the Audit Team must also come out with a report giving an assessment of internal control and the extent to which reliance could be placed on the work of internal and other auditors. The auditor shall also determine broad areas to be covered during the execution phase and how much emphasis should be placed on each area or the thrust/significant areas as identified.

The Division Chief, if need be will conduct peer reviews in the Division to come to a common understanding of the efforts to be concentrated during the execution phase of the audit.

5.3 Developing a detailed audit procedures

Detailed Audit Procedures

The cornerstone of audit planning is the development of an appropriate audit programme. An audit programme is a detailed list of audit procedures to be performed in the course of the audit, and is designed to accomplish audit objectives. Based on the matters of potential significance and possible areas of line of audit enquiry the auditor shall develop detailed audit procedures, which will be followed during the execution phase. Specific procedures for the preparation of the audit programme are:

Statement of audit objectives in line with the selected maters of potential significance;
Specify audit criteria in line with the stated audit objectives;
List out the audit procedures to be accomplished during the execution phase.
Assignment of task to the Audit Team Member.

The illustration of the preparation of the audit program is as under:

Selected matter of potential significance

Audit of procurement practices followed in an organization

Objective of Audit

Due regard for economy in procurement practices. (This is only one of the objectives)

Audit Criteria (The criterion listed is not exhaustive for the stated objective)

quotations/tenders have been called for;

comparative statements have been prepared;

market survey have been carried out to confirm the rates;

attempts have been made for taking advantage of bulk purchase discounts;

Audit Procedures

Audit Procedures for the listed criterion “quotations/tenders have been called for”

Review of the minutes of the Tender Committee meeting approving the NIQ

Verify mode of NIQ (open competition through advertisement or limited quotation)

Verify NIQ

Verify list of Tender forms issued

Verify the cost of forms accounted

Verify the receipt date of sealed tender forms in the incoming mail register

Confirm the receipt of earnest money.

Assignment of task to the Audit Team Member

The auditor’s name that has been assigned with the task of conducting the audit procedure should be mentioned. This will define and determine the work and responsibilities for each member of the audit team.

Sample of the Detailed Audit Program is illustrated in Form No. 2.

While preparing an audit programme, the auditor must determine the specific audit procedures to be performed in respect of different aspects to be covered, the extent to which those tests will be performed, and the timing of such tests. In the case of recurring audits, the auditor shall plan it in such a manner that certain specific areas are reviewed in rotation. For instance, if procurement is scrutinized deeply in one year, next year it could be the construction or contract and so on.

Determine the resources necessary to perform the audit. The auditor must determine the resources necessary to perform the audit in terms of salary, TA/DA of auditors, time to be spent including the supervisor’s for a particular audit. The auditor must estimate the exact requirement of staff and the involvement of technical persons.

5.3.2 Obtaining approval of the audit program.

The detailed audit plan prepared by the auditor shall be reviewed by the Division Chief to assess its adequacy in meeting the audit objectives before approval at appropriate levels.

5.4 Advantages of a detailed audit program

The audit programme should be sufficiently detailed to serve as a set of instructions to the audit staff as a means to control proper execution of audit. A written audit programme shall have the following advantages:

Provides evidence of the actual conduct of audit.

A written audit programme along with audit working papers provides evidence of actual work performed by auditors.

Serves as a guide to other auditors and simplifies the allocation of work.

A written audit programme provides clear instructions to auditors, reducing any misunderstanding that may arise in case of other auditors joining an ongoing audit assignment. It also simplifies allocation of work because what works should be done by who is clearly specified.

Provides a valuable tool for planning staff requirement.

A written audit programme identifies the skills and experience that may be required of auditors conducting the audit. For example assistance of a technical person might be required in the audit of construction projects.

Facilitates supervision and control over the execution of audit.

It provides a basis against which the actual progress on an audit can be judged; e.g. whether planned time schedule is met or planned procedures are performed etc. facilitating supervision.

Serves as a basis for planning future audits.

Making appropriate modifications in the previous audit programme, plan for future audits can be made. For instance, thrust area might be changed or emphasis could be made in some other areas than in the previous year.

Assists in fixing responsibility for work done.

The auditors have to record their initials against audit procedures performed by them. It assists in fixing responsibility for the work done by the auditors.

A written audit programme, however tends to become mechanical and auditors may lose interest and initiative. As such, the audit programme must be made flexible and constantly reviewed and revised as the audit progresses. There should be a system whereby the audit staff is encouraged to participate in the reviewing and revision of audit programme.

SOME DISTINCT OUTPUTS IN THE VARIOUS PHASES OF AUDIT TEAM LEVEL PLANNING ARE:

Audit Teams Work Plan

List of potential matters of significance

Detailed Audit programme

Letter of Audit engagement

Travel Authorization

6. Planning at Audit Division level

In the beginning of the Financial year the Division Chief will brief the respective Audit Teams and units on their appropriate contribution to the achievement of the audit activities and priorities of the year in accordance with the respective area of responsibility and jurisdiction and evaluation of the prior year’s performance. In setting out the priorities the Division Chief will include the audit thrust and special priorities declared by the Auditor General. The Division Chief will then require each Audit Team to submit work plan for the full year.

The approved work plan of each audit team will be consolidated to form the commitment of the audit teams. The commitment of the audit teams will the be summarized and Divisional Work Plan as per sample annexed in Form No. 3 will be prepared by the Division. The Divisional Work Plan along with the consolidated work plan of the Audit Teams becomes the commitment of the Division for the Financial Year. The Divisional Work Plan should be got approved by the Auditor General.

OUTPUTS OF DIVISION LEVEL PLANNING MIGHT INCLUDE:

Consolidated Work Plan of the Audit Teams

Work Plan of the Division

List of audit by priority taking care of request audits

Approval of teams’ Audit Programme

7. The Royal Audit Authority Level Planning

The RAA level planning shall be the compilation and consolidation of all the Division level plans. Thrust area for the various divisions may be determined by the Auditor General or could be in the form of specific instructions/requests received from the government or other stakeholders. The RAA level planning would encompass the overall auditing and other activities that are directed at fulfilling the mission of the RAA