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CHAPTER 2- AUDIT STRATEGY, AUDIT PLAN AND AUDIT
PROGRAMME
SA 300- Planning an audit of financial statements deals with the auditor’s responsibility to
plan an audit of financial statements. It states that objective of the auditor is to plan the
audit so that it will be performed in an effective manner.
Benefits of Planning
1) Appropriate attention to important areas of the audit.
2) Identify and resolve potential problems on a timely basis.
3) Organize and manage the audit engagement
4) Selection of engagement team members with appropriate levels of capabilities and
competence
5) Direction and supervision of engagement team members
6) Co-ordination of work
Planning is not a discrete phase of an audit, but rather a continual and iterative process
that often begins shortly after (or in connection with) the completion of the previous
audit and continues until the completion of the current audit engagement.
Planning includes the need to consider, prior to the auditor’s identiﬁcation and assessment
of the risks of material misstatement, such matters as: -
1) The analytical procedures to be applied as risk assessment procedures.
2) Obtaining a general understanding of the legal and regulatory framework applicable
to the entity and how the entity is complying with that framework.
3) The determination of materiality.
4) The involvement of experts.
5) The performance of other risk assessment procedures.
The involvement of the engagement partner and other key members of the engagement
team in planning the audit draws on their experience and insight
Planning Process- Elements of Planning

The elements of planning can be categorized as under: -
(I) Preliminary engagement activities
(II) Planning activities
I. Preliminary engagement activities
A. Performing procedures regarding the continuance of the client relationship
a. Acceptance and Continuance of Client Relationships and Audit Engagements
First 3 points of Pre engagement activities as given in complete audit process
B. Evaluating compliance with ethical requirements including independence
Throughout the audit engagement, the engagement partner shall remain alert,
through observation and making inquiries as necessary, for evidence of non-
compliance with relevant ethical requirements by members of the engagement team.
The engagement partner shall:
i. Obtain Relevant information
ii. Evaluate information or identified breaches of information
iii. Take appropriate action to eliminate threats to independence
C. Establishing an understanding of terms of engagement
It is in the interests of both the entity and the auditor that the auditor sends an audit
engagement letter before the commencement of the audit to help avoid misunderstandings
with respect to the audit.
Planning activities
Planning activities involve: -
[A] Establishing the overall audit strategy
[B] Developing an audit plan
(A) Establishing the overall audit strategy- Assistance for the auditor
Overall audit strategy sets the scope, timing and direction of the audit, andguides the
development of the more detailed audit plan.
Audit strategy helps auditor decide:

a. The resources to deploy for specific audit areas,
b. The amount of resources to allocate to specific audit areas
c. When these resources are to be deployed
d. How such resources are managed, directed and supervised
Factors to be taken into consideration by auditor for establishing audit
strategy
The auditor shall take following factors into consideration while establishing audit
strategy: -
(A) Identify the characteristics of the engagement that define its scope
➢ Applicable financial reporting framework applicable to the entity
➢ Nature of business segments to be audited including the need for specialized
knowledge
➢ Industry specific reporting requirements required by industry regulators
➢ Expected use of audit evidence obtained in previous audits
(B) Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required.
➢ The entity’s timetable for reporting
➢ Organization of meetings to discuss of nature, timing and extent of audit work
with management
➢ Discussion with management
➢ Expected nature and timing of communications among engagement team members
(C) Consider the factors that, in the auditor’s professional judgment, are significant
in directing the engagement team’s efforts
➢ Volume of transactions
➢ Significant industry developments
➢ Significant changes in the financial reporting framework
(D) Consider the results of preliminary engagement activities and, where applicable,
whether knowledge gained on other engagements performed by the
engagement partner for the entity is relevant
➢ Results of previous audits that involved evaluating the operating effectiveness of
internal control.
➢ The manner in which the auditor emphasizes to engagement team members the
need to maintain a questioning mind and to exercise professional skepticism
(E) Ascertain the nature, timing and extent of resources necessary to perform the
engagement.
Selection of engagement team and assignment of audit work to team members is a

significant factor in establishing overall audit strategy.
RELATIONSHIP BETWEEN AUDIT STRATEGY AND AUDIT PLAN
Audit strategy sets the broad overall approach to the audit whereas audit plan
addresses the various matters identified in the overall audit strategy. Audit strategy
determines scope, timing and direction of audit. Audit plan describes how strategy
is going to be implemented. The audit plan is more detailed than the overall audit
strategy.
PLANNING SUPERVISION AND REVIEW OFWORK OF ENGAGEMENT TEAM MEMBERS

The auditor shall plan the nature, timing and extent of direction and supervision of
engagement team members and the review of their work. The nature, timing and
extent of the direction and supervision of engagement team members and review of
their work vary depending on many factors, including:
i. The size and complexity of the entity.
ii. The area of the audit.
iii. The assessed risks of material misstatement
iv. The capabilities and competence of the individual team members performing the
audit work.
DOCUMENTATION
The auditor shall document: -

(a) the overall audit strategy
(b) the audit plan and
(c) any significant changes made during the audit engagement to the overall audit
strategy or the audit plan, and the reasons for such changes.
AUDIT PROGRAMME
An audit programme consists of a series of verification procedures to be applied to the
financial statements and accounts of a given entity for the purpose of obtaining sufficient
evidence to enable the auditor to express an informed opinion on financial statements.
Constructing an audit programme

For the purpose of programme construction, the following points should be kept in mind:
(1) Stay within the scope and limitation of the assignment.
(2) Prepare a written audit programme setting forth the procedures that are needed to
implement the audit plan.
(3) Determine the evidence reasonably available and identify the best evidence for
deriving the necessary satisfaction.
(4) Apply only those steps and procedures which are useful in accomplishing the
verification purpose in the specific situation.
(5) Include the audit objectives for each area and sufficient details which serve as a set of
instructions for the assistants involved in audit and help in controlling the proper execution of
the work.
(6) Consider all possibilities of error.
(7) Co-ordinate the procedures to be applied to related items.
Audit Programme- Designed to provide audit evidence

An auditor picks up evidence from a variety of fields and it is generally of the following broad types:
(a) Documentary examination
(b) Physical examination
(c) Statements and explanation of management, officials and employees
(d) Statements and explanations of third parties
(e) Arithmetical calculations by the auditor
(f) Minutes
Advantages and disadvantages of an Audit Programme

The advantages of an audit programme are: -
a. Provides the assistant carrying out the audit with total and clear set of instructions
b. Provide a total perspective of the work to be performed.
c. Selection of assistants for the jobs on the basis of capability
d. Without a written programme, there is a danger of ignoring or overlooking certain books and
records.
e. Assistants accept responsibility for the work carried out by them
f. Guide for audits to be carried out in the succeeding year.
g. Serves as evidence
The disadvantages are: -

a. The work may become mechanical and particular parts of the programme may be carried
out without any understanding
b. The programme often tends to become rigid and inflexible
c. Inefficient assistants may take shelter behind the programme
d. Kills the initiative of efficient and enterprising assistants.

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CHAPTER 2- AUDIT STRATEGY, AUDIT PLAN AND AUDIT

Planning Process- Elements of Planning

Audit strategy helps auditor decide:

Selection of engagement team and assignment of audit work to team members is a

PLANNING SUPERVISION AND REVIEW OFWORK OF ENGAGEMENT TEAM MEMBERS

The auditor shall document: -

Constructing an audit programme

Audit Programme- Designed to provide audit evidence

Advantages and disadvantages of an Audit Programme

The disadvantages are: -

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