How will you prepare an audit programme ? Define the advantages

How will you prepare an audit programme ? Define the advantages and disadvantages of Audit programme.

Ans.

PROCEDURE OF PREPARTION OF AUDIT PROGRAMME

In case of a fixed audit programme, there is a nothing for the auditor to decide as only standardized procedure of audit work has to be followed. In case of flexible audit programme there is no predetermined tests and procedures but has to be devised in accordance with the requirement of business concerns. Therefore the auditor should consider the following aspects:

(1) Scope- The scope of duties of auditor and those of audit clerk depend upon the fact that whether it is a voluntary audit or statutory audit. In case it is a voluntary audit, the scope of duties are as per the terms of employment of the auditor and if it is statutory audit, the scope of duties are laid down in statutes.

(2) Purpose of Audit for Which He is Engaged- The audit may be needed for credit purpose i.e. raising loans etc, for investment purpose i.e. to invest funds by an outsider, to purchase the busines i.e. valuation of assets and liabilities, for detecting and preventing errors and fraud or for filing tax returns.

(3) Important documents of business concern like memorandum of association, articles of association, partnership deed etc.

(4) Nature and size of business operation.

(5) Organizational structure.

(6) Accounting procedures and methods adopted.

(7) Internal control systems.

(8) Elasticity of audit programme to make necessary changes at any stage.

(9) Simplicity as against the complicity of the audit programme.

(10) Audit programme should be according to different departments of the organization.

(11) Specimen of an audit programme given below:

Name of client…… Period….. Financial books….. Done by….. Remarks…….

1. Cash book: Casting Pasting Vouching

2. Bank Account: Checked Reconciled

3. Petty cash book: Checked Vouched

4. Sales Day book: Casting Posting checked Vouching checked

5. Purchases Day book: Casting checked Posting checked Vouching checked

6. Sale return book: Posting checked

7. Purchase return book: Posting checker

8. Bill’s ledger: Bill payable checked Bill receivable checked

9. In depth screening (of certain items): Purchases book checked Sales books checked

10. Journal: Casting checked Posting checked Vouching checked

11. Inventory stock: Taking checked Stock sheet checked

12. Final balance of: Nominal ledger checked Bought ledger checked Sales ledger checked

13. P/L Accounts checked

14. Balance sheet checked

ADVANTAGES OF AUDITS PROGRAMME

The advantages of such an audit programme may be outlined as below:

(1) It ensures that all necessary work has been done and nothing has been omitted.

(2) The auditor is in a position to know about the progress of the work done by his assistants.

(3) A uniformity of the work can be attained as the same programme will be followed at subsequent audits.

(4) Work of the audit can be divided amongst the different juniors who will be responsible for their work. In case a clerk goes on leave, his work can be resumed by another clerk who is in a position to know what work has already been done.

(5) It simplifies the allocation of work to various grades of articles and audit clerks.

(6) In case of a charge of negligence against the auditor for not having done some work, the auditor can defend himself that the work had been done by him or his assistant who had duly signed the audit programme.

(7) It is a kind of guidance to the audit clerk for the work he has to perform. Thus it is a kind of assurance to the auditor that the junior will not overlook essential points while checking the accounts.

(8) In case any fraud or error has remained undetected, the responsibility for negligence can be fixed on the clerk who had performed that work as his initials are put on the audit programme.

(9) It facilitate the final review before the report is signed.

(10) For a new clerk the audit programme is a guide to his duty.

(11) It is a useful basis for planning the programme for the subsequent year.

DISADVANTGES OF AUDIT PROGRAMME

There are, however, certain disadvantages also of such an Audit programme which may be detailed below:

(1) An efficient clerk loses his initiative because he adheres to the programme which has been fixed for him. He may not make any suggestion.

(2) Even if the audit programme is well drawn up, it may not cover everything that might come up during the course of audit.

(3) The audit programme may be followed mechanically year after year though some changes in the routine or internal check might have been introduced by the client. As a matter of fact the audit programme for each new audit should be an improvement over the previous year according to experience.

(4) Each business may have a separate problem of its own and hence a rigid programme cannot be laid down for each type of business.

(5) Drawing up of an audit programme may be unnecessary for a small concern.

(6) The audit clerk may regard the work entrusted to him according to the programme as the maximum work to be done by him.

These disadvantages can be overcome by impressing upon the audit clerk that the audit programme is only a guidance and he should use his initiative and intelligence during the course of audit. He should be encouraged to make suggestions. Moreover, the audit programme should be modified from time to time and made up-to-date according to experience and changes made in the business.