Role of Planning in Auditing - Essay Example

The various aspects of auditing the books of FXT International Limited include vouching, verification, and valuation (Kumar and Sharma, 2005, p. 59).

Considerations in Audit Planning
It is Abacus’ plan to conduct an effective audit through an efficient approach that will last the shortest possible time. The basis of the auditing plan is FXT International Limited’s line of business. FXT International Limited offers structured financial products as well as financial derivatives to institutional investors. Therefore, the basis of the auditing plan is the understanding of the financial and derivatives market. Abacus will perform tests of control and procedures to come up with reasonable conclusions that will assist in the formation of an opinion on the client’s financial statements (Kumar and Sharma, 2005, p. 72). The plan will be based on FXT International Limited’s accounting system policies and procedures that direct its internal control processes. Concisely, some of the factors that Abacus will consider when planning the audit include:

1. FXT International Limited’s business environment with particular emphasis on its commercial environment.
2. The complexity of the audit exercise is the subject of the size of the company.
3. Previous experience with FXT International Limited
4. Knowledge of FXT International Limited business apart from the reporting requirements of financial services institutions. It is the most important factor that Abacus will consider when planning an audit.

Understanding FXT International Limited’s business
It is the most important factor because it will enable Abacus to identify the events, transactions, and practices that may affect financial information. Auditors will derive such knowledge from areas such as:
a) Annual reports
b) Minutes of meetings with stakeholders including shareholders and the board of directors
c) Internal financial management reports such as departmental budgets
d) the Previous audit working papers
e) Policies and procedures
f) The prevailing state of the economy and its impact on FXT International Limited’s business
g) A survey of FXT International Limited’s premises

The article of the association will give auditors ideas about FXT International Limited’s size and nature. Additionally, auditors from Abacus will acquaint themselves with the management of FXT International Limited’s business (Kumar and Sharma, 2005, p. 80).

Preliminary Preparations by the Auditor
Abacus will prepare well for the auditing exercise and will undergo the following steps before commencing the actual work:
1. Signing an agreement with FXT International Limited
2. Establishing the scope of the audit
3. Understanding FXT International Limited’s business
4. Understanding FXT International Limited’s accounting system
5. Gathering information about FXT International Limited’s staff
6. Gathering technical details about FXT International Limited
7. Issuing instructions and getting instructions to the client and from the client respectively

Overall Objectives of Audit Planning
A. To comply with ICAI/RBI guidelines
B. To comply with accounting and auditing standards

Accounting standards require that listed companies publish audited books of account. The rationale is that audited books of account are reliable because of the opinion of an independent evaluator (Kumar and Sharma, 2005, p. 89).

C. To ensure that the auditor covers all the areas of responsibility including tax auditing and FAR
Planning involves identifying goals and steps that will assist auditors to achieve such goals. Auditing planning ensures that the auditors identify all the areas of responsibility and identify areas of action that will enhance the achievement of the goal of the auditing exercise.

D. To complete the auditing exercise on time
FXT International Limited has a proposal to a group of investors who are demanding an audit report on the company’s books of accounts. Auditing planning will ensure that auditors from Abacus present the report before the expiry of the deadline presented by the investors (Kumar and Sharma, 2005, p. 90).

E. To ensure that the process of financial statement reporting achieves effectiveness
The role of financial statement reporting is to inform stakeholders and the public about the performance of the company. A financial statement becomes effective if it aids investors and shareholders make a sound investment decision (Kumar and Sharma, 2005, p. 91). Audit planning aims at ensuring that FXT International Limited prepares accurate and useful accounting information that will assist the investors to make a sound investment decision.

Planning Activities
A. Establishing the overall auditing strategy: the auditors will determine procedures and resources that will be used during the auditing exercise
B. The audit plan: the auditors will determine the nature and scope of auditing procedures
C. Changes to planning decisions: the auditors may need to change the auditing strategy and the audit plan because of the risk of unexpected events occurring or even conditions changing.
D. Direction, Supervision, and Review: members of the auditing team will review their work before publishing the final report.





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