Audit Planning Overview This unit covers annual audit planning.
Objectives By the end of this unit, you should be able to: - Identify the requirements of annual audit planning. - Record information needed to understand your organization. - Identify areas of risk and which areas to audit. - Identify and practice using techniques to select audit teams. - Identify tools and techniques to schedule and manage audits.
1
7/18/13
Annual Audit Plan
- Standard 2010: Planning
- Related Practice Advisory 2010-1: Planning
Typical Audit Project Plan
- Standard 2200: Engagement Planning
- Standard 2210: Engagement Objectives
Why are we auditing this activity?
- Standard 2220: Engagement Scope Inclusion
and exclusion
2
7/18/13
Audit Planning
Planning is the process that anticipates future
events and develops courses of action to meet these challenges.
A plan is a specific documented recording of
the results of the planning process.
Your Role in Audit Planning
Develop an understanding of your current and
potential future roles in annual planning and in project planning, and compare your role with those o f others.
3
7/18/13
Obtain an Understanding
Answer the questions below as they relate to your organization.
- What is the name of your organization? - How many employees does your organization have? - Who started your organization? Why and when was it started? Who manages the organization now? - Who is/are your organization s: CEO (or equivalent); CFO (or equivalent) - What is the nature of the organization? - What products and services does it provide? - Who are its customers and why do they buy/obtain their goods and services from your organization? - What is the legal form of the organization (proprietorship, partnership, corporation, government entity)?
Identify Areas of Risk
A risk assessment ranks the organization s auditable activities
by its exposures to various identified risks. This analysis is performed based on input from members of management and information about the business and related business functions.
The risk assessment is used to evaluate and prioritize the areas
of highest risk and to allocate audit resources to ensure that these areas receive the highest consideration for audit attention as well as determining the necessary level of audit intensity, frequency, and timing.
4
7/18/13
Identify Areas of Risk
Requirements of annual audit planning
Audit management has the responsibility of determining where to best use the organization s limited audit resources.
These decisions are usually made as part of annual audit planning.
1. Identify Organizational Risks
Typically audit management identifies and classifies the organization s auditable units/ activities by area (for example, inventory, cash counts, contracts, IT, departmental audits) and identifies the auditable units within each classification. They assign risk values for each auditable unit/activity based on criteria such as experience, exposure and management input. Management ranks the scores and then chooses those areas with the highest scores for inclusion in the annual audit plan.
2. Budget for Audit Scope and Audit Intensity
Activities that have higher risks should be audited more intensely. Determining audit intensity takes into consideration the time involved and time available as well as the audit resources and skill and experience available to perform the audit.
5
7/18/13
Requirements of annual audit planning
3. Involve Senior and Operational Management in the Audit Planning
Process Audit management usually invites input from the organization s managers and senior management. Including these members of management as part of the planning process helps gain their support for the audit and often helps in gaining cooperation, during the audit, from the audit clients who report to these members of management.
Requirements of annual audit planning
Variables to Consider When Identifying What to Audit
• Changes in economic conditions • Interest rates • Competition • Productivity, innovation • Changing customer needs • Shifting expectations • Business impacts on suppliers • Changes in laws and regulations • New laws and regulations • Politics and current events • War • Changes in technology • Management requested audits • Changes in management • New processes or activities • New systems • Reviewing the economy, efficiency, and effectiveness of existing operations
6
7/18/13
Requirements of annual audit planning
Identifying Auditable Units/Activities
Auditable units/activities may include:
• Organizational units. • Cost centers, profit centers, and investment centers. • Product or service lines. • Polices, procedures, and practices. • Information systems. • Major contracts and programs. • Processes and systems, such as purchasing, production, and inventory. • Financial statements. • Laws and regulations.
Requirements of annual audit planning
Selecting Your Team and Setting Expectations
Skills and Knowledge of Team Members
Audit management is responsible for making sure that the internal
auditor(s) who perform the audit have the right knowledge, skills, and experience to carry out the job in a competent manner.
Your goal in assigning audit projects as an audit manager is to not only
assign the best skilled and experienced people to the project but also to address the personality and other human factors of the team s make- up.
7
7/18/13
Requirements of annual audit planning
Selecting Your Team and Setting Expectations
Exercise
Requirements of annual audit planning
Scheduling and Resource Allocation(talent measurement)
This means to measure and match expertise with staff assignments and set growth goals as well.
Resource Allocation
Matching the skills and abilities of staff to various often specialized
tasks is an important challenge for a new manager.
8
7/18/13
Requirements of annual audit planning
Project Management and Tools
Determine the tools needed to
monitor audit progress and carry out audit steps.
9
Selecting Your Best Team
Purpose: The purpose of this activity is to practice applying methods to allocate limited human resources, address audit risk coverage, and satisfy customer demand.
The Hutt Stuff Operations’ regional manager of North America reviewed and agreed with the audit program’s audit scope and auditable activities. He asked, however, that you move up the date of the billing and credit audit to IMMEDIATE. Since credit and billing was rated high-risk relative to Hutt Stuff management‘s objectives, you agree and begin to assemble an audit team. You have a staff of five auditors who are fairly well balanced in their skill set. Your team is skilled at performing operational, compliance, and financial audits. The average experience is 2.5 years.
As you are going over the assignment schedules, you also receive an e-mail from the chief audit executive that the implementation of Hutt Stuff @ the Edge is “blowing up in Europe.”
Knowing that you worked on the successful implementation of Hutt Stuff @ the Edge in North America, you are asked to consult and “lend a hand” with the audit team in Europe. On your team of five, two staff members stand out with leadership qualities. The other three are more junior and have not led audits in the past. The two lead auditors are: Jen and Ken. Jen has been on the audit staff the longest. She came out of a public accounting firm and is one of the few people you know who just love to audit. In her last review, you discussed with her that she needed to develop staff and work on her interpersonal skills more. Jen is fairly well versed in ACL and usually finished her work on time with minimal rework as a result of your review.
Ken’s background is in Operations. He has been with Hutt Stuff for 10 years, with the past four years in Internal Audit. He was hired into Hutt Stuff Billing right out of college. Ken loves to party and have a good time. In his last review, his area of needing improvement was to put more focus toward completing his work on time. Ken is a motivator though and knows how to get the most out of staff on the job as well as works well with the client.
Instructions
As the audit manager, you realize that you need to do your best to match the strengths of your staff with the work assignments, work toward their development, accomplish the audit assignments in a risk-based approach, and satisfy the needs and desires of your boss and customers. Knowing these things, what is your plan to accomplish your objectives?
1. Do you say “No” to the Operations regional manager or your boss? If so, state who, justify your answer, and address how the business risk will be mitigated.
2. Do you go to Europe? If so, who do you leave in charge and what are your expectations and plans?
3. Do you stay and send someone else to Europe? State why this is the best alternative.
4. Create your own alternative plan of action and expected results.
Be creative as to which course of action would be the best. Discuss as many details as possible regarding audit approach, documentation requirements, communication methods, audit procedures, and methods to monitor audit progress.
