Understanding True and Fair View, Audit Planning, and Audit Programs

Posted on May 1, 2024 in Economy

True and Fair View in Auditing

Definition: True and fair view means financial statements are free from material misstatements and accurately represent the entity’s financial performance and position.

Explanation:

  • True: Financial statements are factually correct, prepared according to applicable reporting frameworks (e.g., IFRS), and free from material misstatements.
  • Fair: Information is presented faithfully, without bias, reflecting the economic substance of transactions.

Application & Importance

Preparing true and fair financial statements is a key responsibility of company directors. Auditors assess whether directors have fulfilled this responsibility when providing an audit opinion.

Audit Planning

Planning is crucial in the audit process to ensure high technical standards, efficient use of personnel, and overall effectiveness. An audit plan helps to:

  • Focus on important audit areas.
  • Identify potential problems early.
  • Ensure timely completion of work.
  • Coordinate work with other auditors and experts.
  • Utilize assistants effectively.

Factors to Consider in Audit Planning

  • Audit complexity
  • Entity’s operating environment
  • Previous experience with the client
  • Knowledge of the client’s business

Knowledge of the Client’s Business

Understanding the client’s business helps identify events, transactions, and practices that may significantly impact financial information. Sources of such knowledge include:

  • Annual reports
  • Meeting minutes
  • Internal financial reports
  • Previous audit working papers
  • Discussions with the client
  • Policy and procedures manuals
  • Economic conditions
  • Site visits

Developing an Overall Audit Plan

The overall plan should address:

  • Audit engagement terms and statutory responsibilities
  • Nature and timing of reports or communication
  • Relevant legal and statutory requirements
  • Client’s accounting policies and changes
  • Impact of new accounting or auditing pronouncements
  • Critical audit areas
  • Conditions requiring special attention
  • Degree of reliance on the accounting system
  • Possible rotation of emphasis on specific areas
  • Nature, timing, and extent of audit evidence

Audit Program

Definition

An audit program is a detailed list of audit procedures to be performed, including timelines, assigned staff, and verification methods. It helps to:

  • Avoid duplication of work
  • Maintain audit pace
  • Control audit staff and their work
  • Manage audit costs

Contents of an Audit Program

  1. Name: Client’s name and address.
  2. Objects: Business objectives of the entity.
  3. Date: Start date of the audit.
  4. Duration: Timeframe for completing the audit.
  5. Accounting System: Description of the accounting system and procedures.
  6. Internal Check: Effectiveness of the internal control system.
  7. Old Reports: Findings and recommendations from previous audit reports.