Why is documenting the audit plan, audit program and internal control important?
Planning the engagement prior to commencing work allows potential problems to be identified early, and enables you to address these problems by including appropriate procedures in your audit program. For example, while planning the audit you may discover a significant proportion of a client’s inventory is at risk of becoming obsolete. Knowing this then allows you to design and document procedures specifically addressing this risk (eg a larger sample of inventory items might be selected for valuation testing). This in turn ensures you have sufficient appropriate evidence on which to base your audit opinion, reducing the risk of issuing an incorrect audit report. Understanding and documenting internal control ensures that you understand how the client operates, what the major transaction flows are and how these are recorded in the general ledger and financial report. This information is useful in alerting you to potential problems in the client’s financial records, which will affect the
