# Audit Programme: Features, Construction, and Audit Evidence

## Definition

An audit programme is a detailed plan of verification procedures to be applied to the financial statements of an entity, with instructions for appropriate techniques to accomplish audit objectives.

> Purpose: To obtain sufficient appropriate audit evidence to enable the auditor to express an informed opinion on the financial statements.

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## Four Key Features of an Audit Programme

### 1. One Programme Does Not Fit All

Businesses vary in nature, size, composition, and internal control effectiveness
Scope of service and the exact nature of the assignment differ across engagements
A universal, one-size-fits-all programme is not practicable

### 2. Assistants Must Keep an Open Mind

As work progresses, situations arise that were not anticipated in the original programme
Assistants must be encouraged to note and report significant matters beyond the programme
These should be escalated to seniors, partners, or the proprietor of the firm

### 3. Periodic Review is Essential

The programme must be reviewed regularly to assess whether it continues to obtain requisite knowledge
If a client's business policy changes and the programme is not updated, the audit may be conducted on an obsolete programme
This constitutes negligent conduct — the auditor may face legal consequences

### 4. Constructing the Audit Programme

Key considerations during construction:

Planning ideally begins at the conclusion of the previous year's audit
Decide whether to rely on internal controls or obtain direct evidence — choose the more efficient path
Consider timing of procedures, availability of client assistance, and involvement of other auditors or experts
Note: some procedures have no timing flexibility (e.g., physical inventory observation must occur at count date; cash/securities verification must be at year-end)

Seven-Point Checklist for Programme Construction:

1. Stay within the scope and limitations of the assignment

2. Prepare a written audit programme

3. Determine the evidence reasonably available — identify the best evidence

4. Apply only steps useful for accomplishing the verification purpose

5. Include audit objectives for each area

6. Consider all possibilities of error

7. Coordinate procedures applied to related items

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## Audit Programme as an Evidence-Gathering Tool

Audit Evidence = information used by the auditor to arrive at the conclusions on which the opinion is based (includes information from accounting records and other sources).

The audit programme prescribes how evidence is collected. Types of evidence gathered:

Type	Example
Documentary examination	Invoices, contracts, board minutes
Physical examination	Cash count, inventory observation
Management/staff statements	Representations, explanations
Third-party statements	Bank confirmations, debtors' circularisation
Auditor's arithmetical calculations	Re-computation of depreciation
Internal controls and internal checks	Walkthroughs, control testing
Inter-relationship of accounting data	Analytical procedures, ratios
Subsidiary and memorandum records	Fixed asset register, ledger
Minutes	Board and committee meeting minutes
Subsequent actions by client/others	Post-balance sheet receipts from debtors

Worked example

### Example 1

Constructing a Programme for Trade Receivables:

Objective: Confirm existence, completeness, and valuation of trade receivables at year-end
Written programme:

1. Obtain aged receivables listing — cast and agree to general ledger (arithmetical + documentary)

2. Select a sample and circularise debtors for confirmation (third-party statements)

3. Review subsequent receipts after year-end for evidence of collectability (subsequent actions)

4. Review credit notes issued post year-end for completeness of provisions (documentary)

5. Discuss significant overdue balances with management; evaluate adequacy of provision (management statements)

Timing note: Debtor confirmations must be dispatched close to year-end — no flexibility on the date chosen for the debtor balance
Coordination: Receivables procedures are coordinated with revenue testing (completeness) and subsequent events review

### Example 2

Why Periodic Review Matters — Scenario: An auditor has been auditing Retail Co. for three years using the same programme. In Year 4, Retail Co. moves from a cash-based to a credit-based sales model. The auditor does not update the programme.

Result: Revenue cut-off procedures (critical for credit sales) are absent; debtor existence and valuation procedures are missing
Risk: Material misstatements in revenue and receivables go undetected
Legal consequence: The audit may be challenged as negligently conducted — the auditor failed to respond to a known change in the client's business policy

⚠️ Common exam mistakes

Applying the same audit programme across all clients without modification — feature 1 explicitly states a universal programme is not practicable.
Not reviewing the programme periodically — a changed business environment makes it obsolete, and conducting an audit on an obsolete programme constitutes negligence.
Assistants rigidly following only the programme and not reporting significant matters that fall outside it — the 'open mind' principle requires them to escalate unexpected findings.
Forgetting that some procedures have no timing flexibility — physical inventory observation and year-end cash/securities counts cannot be performed at a convenient interim date.
Confusing the audit programme with the audit plan — the audit plan describes the overall NTE of procedures; the audit programme is the granular, step-by-step set of verification instructions for a specific area.

Reference:

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Audit Programme — Features, Construction, and Evidence

Worked example

⚠️ Common exam mistakes