An audit plan is the specific guideline to be followed when conducting an internal or external audit. Internal audits are usually conducted by a company’s accounting staff and are primarily used for a management review of accounting processes. External audits are conducted by external public accounting firms or private certified public accountants (CPA) to ensure outside stakeholders that the company’s financial information is prepared in accordance with that jurisdiction's accepted accounting principles. External audits usually use a formal plan for auditors to follow.
In most cases, an audit plan consists of the following phases: planning, fieldwork, a follow-up meeting, and a remedial audit. The planning phase is when external auditors meet with company management to determine which accounting processes will be audited and what the depth and breadth of the audit should be. During this initial meeting, auditors typically request that the company managers prepare a specific sample of accounting information for auditors to review. Asking for this information during the planning phase ensures auditors don't waste time collecting this information when conducting fieldwork.
The fieldwork phase is where the bulk of work is completed by auditors. It may include walking around the company and observing the accounting functions, interviewing employees who handle critical accounting information, and testing the company’s audit sample against standard accounting principles or company guidelines. The testing phase determines if any irregularities exist in the company’s accounting information. The plan usually lists a specific order for the fieldwork to be completed; this allows auditors to work in a logical manner and not skip any essential accounting operations that should be included. Once the audit is completed, auditors prepare a final report for the follow-up management meeting.
The follow-up management meeting is where the auditors discuss any material weaknesses found in the company’s accounting process. Other errors or irregularities are also discussed to inform management about the effectiveness of their internal controls. Company managers may question audit findings and request a second review of the process prior to releasing the final audit report. If a company fails the initial audit, they may be subject to a remedial audit.
Remedial audits are a secondary audit conducted on a company’s financial accounting information; it's normally performed if the company failed the initial audit. The audit plan usually requires auditors to go back to the company and review the specific accounting functions where the company failed. If corrective measures have been taken to eliminate the initial accounting errors, auditors usually sign off on these corrective measures and issue an updated audit report.