Audit Plan, Audit Programme & Code of Conduct
1. Audit Planning (SA 300)
Under Standard on Auditing (SA) 300 - Planning an Audit of Financial Statements, audit planning is not a discrete phase of an audit; rather, it is a continual, iterative process that commences shortly after the completion of the previous audit and continues through to the finalization of the current engagement.
Core Objectives of an Audit Plan:
- Ensure appropriate attention is devoted to critical, high-risk areas of the client’s financial operations.
- Identify potential issues (such as inventory valuation discrepancies or revenue recognition timing) at an early stage.
- Organize and manage the audit team efficiently to complete field testing within established statutory timelines.
- Facilitate the effective assignment of tasks to team members based on their technical competencies.
Components and Flow of Comprehensive Audit Planning
01
Client Knowledge
Understand business industry, laws, accounting policies, & internal checks
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02
Risk Assessment
Establish materiality thresholds & evaluate inherent risk (SA 320)
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03
Audit Strategy
Determine scope, timing, & direction of audit resources
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04
Audit Programme
Draft itemized procedural instructions & team assignments
2. Audit Programme: Concept, Advantages & Disadvantages
An Audit Programme is a detailed, written schedule of audit procedures prepared by the audit partner or senior manager, prescribing the exact verification steps to be executed by audit assistants regarding each accounting head, along with time budgets and allocation of responsibilities.
Advantages of an Audit Programme:
- Systematic Workflow: Ensures no vital accounting head (e.g., depreciation calculations, bank reconciliations) is inadvertently bypassed.
- Fixed Responsibility: Each audit assistant initials the programme against completed tasks, establishing clear accountability for negligent or omitted testing.
- Progress Tracking: Senior managers can easily monitor field progress against allocated time budgets.
- Future Reference & Legal Defense: Serves as tangible evidence in court if the auditor faces civil lawsuits alleging professional negligence.
Disadvantages & Operational Limitations:
- Mechanical Rigidity: Inexperienced audit assistants may treat the programme as an inflexible checklist, ignoring unusual red flags not explicitly listed.
- Loss of Initiative: Destroys creative curiosity and professional skepticism if staff merely focus on checking off items to meet daily quotas.
- Inflexibility Across Diverse Clients: A standardized programme cannot be applied blindly to diverse business models (e.g., manufacturing vs. banking).
Remedy: The audit programme must be dynamic and flexible, regularly updated to reflect new risks or internal control deficiencies uncovered during field audits.
3. Specimen of an Audit Programme (Cash & Bank Section)
| Audit Procedure / Verification Step | Reference Head | Allocated Assistant | Target Date | Initials / Remarks |
|---|---|---|---|---|
| 1. Verify physical cash in hand on balance sheet date; count notes and coins in cashier presence. | Cash Balance | R. Sharma | 31-Mar-2026 | Verified, zero variance |
| 2. Obtain direct independent bank confirmation letters for all operating and deposit accounts (SA 505). | Bank Confirmations | P. Mehta | 05-Apr-2026 | Letters received & verified |
| 3. Scrutinize Bank Reconciliation Statements (BRS); trace uncredited deposits & unpresented cheques. | BRS Testing | P. Mehta | 08-Apr-2026 | All reconciliations cleared |
| 4. Test cash sales receipts against sequential cash register machine rolls and daily banking slips. | Cash Receipts | A. Verma | 12-Apr-2026 | Random sample of 100 entries tested |
| 5. Review payments exceeding INR 10,000 for compliance with Income Tax Act Section 40A(3). | Statutory Compliance | R. Sharma | 15-Apr-2026 | All cleared through banking channels |
4. Audit Documentation: Working Papers & Audit Notebook
Under SA 230 (Audit Documentation), the auditor must maintain complete, systematic written records of the audit procedures performed, relevant audit evidence obtained, and audit conclusions reached.
Systematic Architecture of Audit Documentation
Audit Working Papers (SA 230)
- Permanent Audit File: Contains documents of ongoing importance across multiple years: Memorandum & Articles of Association (MoA & AoA), major long-term loan contracts, plant layouts, and internal control manuals.
- Current Audit File: Relates exclusively to the year under audit: current year trial balance, bank reconciliations, inventory count sheets, board resolutions, and management representation letters.
- Ownership: As held in Chantrey Martin & Co. v. Martin (1953), working papers are the absolute legal property of the auditor, not the client!
Audit Notebook
- Nature: A bound register maintained by the audit team during field inspection.
- Contents: Technical errors discovered, queries raised with client staff, missing vouchers, disputed entries, and points to be discussed with senior management.
- Significance: In legal litigation, the audit notebook is admissible as contemporaneous primary evidence demonstrating the auditor exercised due professional care.
5. Professional Ethics & Code of Conduct for Auditors
Because financial markets rely heavily on audited statements, auditors must adhere to rigorous ethical standards. Under the Chartered Accountants Act 1949 (First & Second Schedules) and the ICAI Code of Ethics, five fundamental principles define the auditor’s value system:
Five Fundamental Principles of the Professional Code of Conduct
Principle 1
Integrity:
Being straightforward, honest, and truthful in all professional and business relationships. An auditor must not associate with materially false or misleading information.
Principle 2
Objectivity & Independence:
Maintaining complete intellectual freedom without compromising professional judgment due to bias, conflict of interest, or undue influence of management.
Principle 3
Professional Competence & Due Care:
Maintaining professional knowledge and skill at the level required to ensure clients receive competent service based on current legislation and standards.
Principle 4
Confidentiality:
Respecting the confidential nature of client data acquired during audits. An auditor must never disclose proprietary client secrets without statutory duty or legal consent.
Principle 5
Professional Behaviour:
Complying with relevant statutory laws and avoiding any action that discredits the profession or constitutes professional misconduct under the CA Act.
6. Key Exam Review Questions
- Explain the essential contents and significance of an Audit Plan under SA 300.
- What are Audit Working Papers? Discuss the distinction between Permanent Audit Files and Current Audit Files.
- State the fundamental ethical principles an auditor must observe as prescribed by the Institute of Chartered Accountants of India (ICAI).