Audit Program: Meaning, Objectives, Contents, Advantages, Disadvantages

Meaning of Audit Program

An audit program is a set of policies and procedures to perform and verify the auditing work to evaluate a business’s financial statements.

Professor Meigs defines, “An audit program is a detailed plan of the auditing work to be performed, specifying the procedures to be followed in the verification of each item in the financial statements and giving the estimated time required.

An audit program is a set of policies and procedures that dictate how an evaluation of a business is done.

This generally involves specific instructions on how much the evidence must be collected and evaluated, who will collect and analyze the data and when this should be done.

These programs check up on a business’s performance, finances, economy, and efficiency and are generally tailored to a specific business or purpose.

It is a description, memorandum, or outline of the work to be done, prepared by an auditor for the guidance and control of the assistants. It guides arranging and distributing the work and checking against possible omissions.

Objectives of the Audit Program

The objectives of the audit program are to:

1. Determine compliance with company policy and procedures.
2. Determine the effectiveness of the policy and procedures.
3. Determine the accuracy of reports generated by department personnel.
4. Evaluate the adequacy of internal controls.
5. Determine compliance with applicable state and federal regulations of the function under review.
6. Search for value-added recommendations that improve the efficiency and contribution of the function under review.

Contents of Audit Program

The contents of the audit program are as follows:

1. A review of the system of internal check.
2. Audit of balance sheet.
3. Audit of an income statement.
4. The details of various audit work to be performed and their classification.
5. Preparation of audit report and coordination of all the above-mentioned items.

Advantages of Audit Program

The advantages of the audit program are:

1. It provides a clear set of instructions on the work to be done.
2. It provides a clear record of work done and by whom.
3. The senior auditors can review work.
4. Work will not be duplicated.
5. No important work will be overlooked.
6. Evidence of work done is available for use in defending charges of negligence.
7. The audit program serves as a shield against any charge of negligence by a client on the part of the auditor.
8. It assures that no material aspect of the audit examination has been overlooked.
9. It pinpoints the audit work to be done by audit staff, and that has already been done.
10. It facilitates the distribution of work among the audit staff according to their knowledge.
11. The audit program of last year serves as a basis for preparing the audit program for the subsequent year.
12. Before signing the audit report, the final review of the work done can be easily made.
13. It ensures adherence to International Accounting and Auditing Standards.
14. The responsibility of each audit staff (articled clerk) is fixed.

Disadvantages of Audit Program

The disadvantages of the audit program are as follows:

1. Work may become mechanical.
2. Parts may be executed without regard to the whole scheme.
3. A program may be rigidly followed.
4. An initiative may be lost.
5. Audit staff may not have the opportunity of showing independent thinking, intelligence, and initiative due to adherence to audit programs.
6. An audit program may not cover everything that might come up during an audit,
7. It may create rigidity in audit examination if not frequently reviewed and updated.
8. The audit staff is bound to follow the audit program mechanically irrespective of changes in internal control introduced by the client.
9. Audit staff may claim that an audit program did not provide a particular audit examination.
10. A fixed auditing program will have its limitations.
11. Clients’ staff knowing the extent and methods of checking followed by the auditor, may devise means to escape fraud detection by an auditor.
12. Drawing up an audit program may be unnecessary for a small concern.

These disadvantages can be overcome by impressing upon the audit clerk that the audit program is only a guide and he should use his initiative and intelligence during an audit.

He should be encouraged to – make suggestions.

Moreover, the audit programs should be modified from time to time and made up-to-date according to experience and changes made in the business.