Planning an Internal Audit - Understanding SIA 310 for Auditors and CFO
- CA Balaji Padmanabhan
- Apr 24
- 4 min read
SIA 310 is fundamentally about designing an audit that mirrors the DNA of the business. It recognises a critical reality that every business carries risk differently.
Therefore, SIA 310 requires that internal audit planning must begin with one core principle:
“Understand how this specific business creates, handles, and potentially loses value.”
Only after this understanding should the audit plan be built.
The Core Concept of SIA 310
SIA 310 introduces a risk-based, business-aligned planning approach, which means:
Map the Business Model
How does money flow from customer to bank?
Where are the dependencies?
Where are the leakages possible?
Identify Risk Zones
Not all departments carry equal risk.
Some areas can impact survival, others only efficiency.
Prioritise Audit Coverage
Audit time and effort must focus on high-impact areas.
Design a Structured Plan
Define scope, timelines, responsibilities, and reporting.
SIA 310 converts internal audit into a customised risk evaluation framework, not a standard checklist.
Application Across Different Forms of Businesses
1. Manufacturing Businesses
(Factories, Plants, Process Industries)
How value is created in the manufacturing process:
Raw materials → Production → Finished goods → Sales
Where value is lost (key risks):
Excess consumption of raw materials
Production inefficiencies and wastage
Incorrect costing affecting pricing decisions
Inventory pilferage or obsolescence
Machine downtime and under-utilisation
SIA 310 Planning Approach:
Audit must go beyond accounts into plant-level operations
Include:
Bill of materials (BOM) validation
Standard vs actual consumption analysis
Inventory movement tracking
Production cycle review
Audit focus shifts from finance to operations, because that’s where risk lives.
2. Trading Businesses
(Wholesalers, Distributors, Retail Chains)
How value is created in trading business:
Purchase → Inventory → Sales → Collection
Where value is lost:
Thin margins eroded by uncontrolled discounts
GST mismatches and ITC reversals
Slow-moving or dead inventory
Bad debts and credit mismanagement
Unrecorded sales or billing inconsistencies
SIA 310 Planning Approach:
Focus on revenue assurance and compliance accuracy
Include:
Sales vs GST reconciliation
Margin analysis by product/customer
Credit control and ageing review
Inventory turnover analysis
Even small leakages can wipe out profits—planning must reflect this sensitivity.
3. Service Businesses
(Consulting, IT, Staffing, Professional Services)
How value is created by service business:
People + Expertise → Service Delivery → Billing
Where value is lost:
Incorrect or delayed billing
Revenue leakage due to poor contract enforcement
Overstaffing or underutilisation
Dependency on key employees
Untracked project costs
SIA 310 Planning Approach:
Focus on contracts, billing logic, and manpower efficiency
Include:
Agreement vs invoice validation
Timesheet and utilisation analysis
Cost-to-project mapping
Client profitability analysis
Here, revenue is invisible, so audit must validate assumptions—not just entries.
4. Startups & High-Growth Companies
How value is created in startups:
Innovation → Rapid scaling → Market capture
Where value is lost:
High burn rate without financial discipline
Weak or evolving internal controls
Inadequate documentation
Investor reporting gaps
Compliance ignored in early stages
SIA 310 Planning Approach:
Focus on governance before scale becomes uncontrollable
Include:
Expense monitoring and burn analysis
Internal control framework design
Investor reporting validation
Compliance readiness
Audit here is not about detection—it is about building structure early.
5. Family-Managed / SME Businesses
How value is created in family managed business:
Relationship-driven operations + promoter decisions
Where value is lost:
Informal processes with no documentation
Cash handling risks
Over-dependence on trusted individuals
Lack of segregation of duties
Limited visibility into true profitability
SIA 310 Planning Approach:
Focus on formalising controls without disrupting immediately the existing system
Include:
Process documentation
Role clarity and segregation
Cash and expense controls
Fraud risk identification
The challenge is balancing control with flexibility.
6. Multi-Location / Expanding Businesses
How value is created:
Scale and geographic reach
Where value is lost:
Lack of standardisation across branches
Compliance variations across states
Monitoring challenges
Decentralised decision-making risks
SIA 310 Planning Approach:
Focus on uniformity and central control visibility
Include:
Branch audits
SOP standardisation
Centralised reporting validation
State-wise compliance checks
Growth increases complexity—planning must ensure control keeps pace.
Where CFO and Auditor Fit into This Model
CFO:
Identifies where the real financial stress and risks exist
Aligns audit plan with business strategy and future direction
Ensures data integrity and execution discipline
Internal Auditor:
Converts business understanding into a risk-based audit structure
Designs and prioritises audit coverage
Continuously updates plan based on evolving risks
Together, they ensure audit planning is relevant, focused, and impactful.
Many organisations apply the same audit template across all business types.
A manufacturing audit plan cannot work for a startup.
A trading audit approach cannot work for a service firm.
SIA 310 demands customisation, not standardisation.
To Conclude:
SIA 310 is not about planning “an audit.”
It is about designing a risk map of the business and aligning audit effort to it.
The real power of SIA 310 lies in this question:
“Where is value created in this business—and where is it silently leaking?”
Businesses that answer this correctly don’t just audit better—they operate smarter, scale faster, and fail less often.
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