Having fixed up the audit scope and gained knowledge over the business, accounting, and internal control system, the auditor needs to draw up a plan of action. The plan of action is called an audit program.
Professor Meigs defines, “An audit program is a detailed plan of the auditing work to be performed, specifying the procedures to be followed in the verification of each item in the financial statements and giving the estimated time required.”
An audit program is a set of policies and procedures that dictate how an evaluation of a business is done.
This generally involves specific instructions as to what, and how much, the evidence must be collected and evaluated, as well as who will collect and analyze the data and when this should be done.
These types of programs are used to check up-on things like a business’ performance, finances, economy, and efficiency, and are generally tailored to a specific business or purpose.
It is a description, memorandum or an outline of the work to be done, prepared by an auditor for the guidance and control of the assistants. It provides a guide in arranging and distributing the work and in checking against the possibility of omissions.
Objectives of the Audit Program
The objectives of the audit program are to:
- Determine compliance with company policy and procedures.
- Determine the effectiveness of the policy and procedures.
- Determine the accuracy of reports generated by department personnel.
- Evaluate the adequacy of internal controls.
- Determine compliance with applicable state and federal regulations of the function under review.
- Search for value-added recommendations that improve the efficiency and contribution of the function under review.
Contents of Audit Program
The contents of the audit program are as follows:
- A review of the system of internal check.
- Audit of balance sheet.
- Audit of an income statement.
- The details of various audit work to be performed and their classification.
- Preparation of audit report and co-ordination of all the above-mentioned items.
Advantages of Audit Program
The advantages of audit program are:
- It provides a clear set of instructions on the work to be done.
- It provides a clear record of work done and by whom.
- Work can be reviewed by the senior auditors.
- Work will not be duplicated.
- No important work will be overlooked.
- Evidence of work done is available for use in defending charges for negligence.
- The audit program serves as a shield against any charge of negligence by a client on the part of the auditor.
- It assures that no material aspect of audit examination has been overlooked.
- It pinpoints the audit work to be done by audit staff and that has already been done.
- It facilitates the distribution of work among the audit staff according to their knowledge.
- The audit program of last year serves as a basis in preparing the audit program for the subsequent year.
- Before signing the audit report, the final review of the work done can be easily made.
- It ensures adherence to International Accounting and Auditing Standards.
- The responsibility of each audit staff (articled clerk) is fixed.
Disadvantages of Audit Program
The disadvantages of audit program are as follows:
- Work may become mechanical.
- Parts may be executed without regard to the whole scheme.
- A program may be rigidly followed.
- An initiative may be lost.
- Audit staff may not have the opportunity of showing independent thinking, intelligence, and initiative due to adherence to audit programs.
- Audit program may not cover everything that might come up during an audit,
- It may create rigidity in audit examination if not frequently reviewed and updated.
- Audit staff is’ bound to follow audit program mechanically irrespective of changes in internal control introduced by the client.
- Audit staff may defend by claiming that a particular audit examination was not provided by an audit program.
- A fixed auditing program will have its limitations.
- Clients’ staff knowing the extent and methods of checking followed by the auditor may devise means to escape detection of fraud by an auditor.
- Drawing up of an audit program may be unnecessary for a small concern.
These disadvantages can be overcome by impressing upon the audit clerk that the audit program is only a guide and he should use his initiative and intelligence during an audit.
He should be encouraged to – make suggestions.
Moreover, the audit programs should be modified from time to time and made up-to-date according to experience and changes made in the business.