AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

CHAPTER 2 – AUDIT STRATEGY, AUDIT PLANNING AND

PROGRAMME
AUDIT PLANNING
A. Benefits of Audit Planning:
1. Devote appropriate attention on important areas
2. Identify and resolve potential problems on a timely basis.
3. Helps in systematic organizing and managing the audit.
4. Helps in selection of engagement team members with appropriate levels of capabilities and
competence to respond to anticipated risks, and assigning work to them.
5. Directing, supervising and reviewing team member’s work.
6. Helps in coordination of work done.
CAQ 1: Write short note on: Usefulness of careful and adequate audit planning.

CAQ 2: Surya and Chand Ltd is a manufacturing company engaged in the production of miscellaneous electrical goods.
Trilochan and Co. has been appointed as the auditors to carry out its audit. Auditor thinks that planning an audit
would involve establishing the overall audit strategy for the engagement and developing an audit plan. Also, Adequate
planning benefits the audit of financial statements in several ways. Analyse and advise explaining the benefits of
adequate planning. [RTP-May 18]

CAQ 3: “An adequate planning benefits the audit of financial statements.” Discuss. [Nov. 18 – 5 Marks]

CAQ 5: Explain the benefits of planning in the audit of financial statements. [RTP-May 19]

CAQ 6: Engagement partner of Audit Firm MKC AND COMPANY thinks that planning an audit would involve
establishing the overall audit strategy for the engagement and developing an audit plan. Also, Adequate planning
would benefit the audit of financial statements in several ways. Analyse explaining the benefits of adequate
planning. [RTP-Nov. 19]

CAQ 7: Adequate planning benefits the audit of financial statements in several ways. Explain [RTP-May 23]

B. Is Audit Planning a continuous process?

1. It is not a describe phase but a continual and iterative process.
2. It begins after completion of previous audit and continues till the end of audit.
3. Planning includes the need to consider identification and assessment of ROMM (Risk of material
misstatement such as

CA KARTHIK G SHENOY | ArivuPro Academy 18

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

a. Analytical procedures as RAP

b. Understanding applicable frame work and how it is complied.
c. Determining materiality.
d. Experts’ involvement.
e. Performing other RAP.
4. The engagement partner and other key members of the engagement team shall be involved in
planning the audit including planning and participating in the discussion among engagement team
members.
5. The auditor may decide to discuss elements of planning with the entity’s management to facilitate
the conduct and management of the audit engagement.

CAQ 8: “Planning is not a discrete phase of an audit, but rather a continual and iterative process”. Discuss.
[Nov. 18-5 Marks]

CAQ 9: Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly
after the completion of the previous audit and continues until the completion of the current audit engagement. Analyse
and explain. [RTP-Nov. 19]

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: The auditor considers whether relationship with client
should be continued and whether ethical requirements including independence continue to be complied
with. It includes: -
a. Performing procedures regarding the continuance of the client relationship –
(i) Ensure that appropriate procedures regarding the acceptance and continuance of client
relationships and audit engagements have been followed and that conclusions reached in
this regard are appropriate.
(ii) The firm should obtain information considered necessary in the circumstances before
accepting an engagement with a new client.
(iii) Matters such as
a. Integrity of principal owners and key management,
b. Competence of engagement team to perform the audit engagement and

CA KARTHIK G SHENOY | ArivuPro Academy 19

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

c. Implications of matters that have arisen during current and previous audit engagement
may need to be considered Evaluating compliance with ethical requirements, including
independence.
(iv) In case of initial engagements, communication with predecessor auditor should be made,
where there has been a change of auditors.
b. Evaluating compliance with ethical requirements, including independence: -
(i) The auditor shall continuously evaluate compliance with ethical requirements including
independence
(ii) 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.
(iii) If matters come to the engagement partner’s attention that indicate that members of the
engagement team have not complied with relevant ethical requirements, the engagement
partner, in consultation with others in the firm, shall determine the appropriate action.
(iv) Form a conclusion on compliance with independence requirements that apply to the audit
engagement. In doing so, the engagement partner shall: -
a. Obtain relevant information from the firm to identify and evaluate circumstances and
relationships that create threats to independence.
b. Evaluate information on identified breaches, if any, of the firm’s independence policies
and procedures to determine whether they create a threat to independence for the
audit engagement and
c. Take appropriate action to eliminate such threats or reduce them to an acceptable
level by applying safeguards, or, if considered appropriate, to withdraw from the audit
engagement, where withdrawal is permitted by law or regulation. The engagement
partner shall promptly report to the firm any inability to resolve the matter for
appropriate action.
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. It ensures that there is no
confusion with the client regarding terms of the engagement.

CA KARTHIK G SHENOY | ArivuPro Academy 20

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

II. PLANNING ACTIVITIES: Planning activities involve: -

Establishing the overall audit strategy
a. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the
audit, and that guides the development of the audit plan.
b. The process of establishing the overall audit strategy assists the auditor to determine such matters as:
(i) The resources to deploy for specific audit areas
a. High risk areas – Deploys experienced members
b. Complex matters – Deploys experts
(ii) Amount of resources to allocate to specific audit areas such as
a. Number of team members assigned to observe the inventory count at material locations
b. Extent of review of other auditors’ work
c. The audit budget in hours to allocate to high risk areas
(iii) When these resources are to be deployed such as whether at an interim audit stage or at key
cut-off dates
(iv) How these resources to be managed, directed and supervised such as meetings, reviews etc.

CAQ 10: The process of establishing the overall audit strategy assists the auditor to determine certain matters with
respect of team resource. Explain those matters.

CAQ 11: Auditor of ABC Ltd. is worried as to management of key resources to be employed to conduct audit. How the
audit strategy would be helpful to the auditor?

CAQ 12: The engagement partner of AST AND ASSOCIATES, firm of Chartered Accountants appointed as auditor of
Fabric India Ltd is considering as to management of key resources to be employed to conduct audit. Discuss how overall
audit strategy would assist the auditor. [MTP-March 18]

CAQ 13: Describe how the process of establishing the overall audit strategy assists the auditor in marshalling his human
resources. [May 19 – 4 Marks]

CAQ 14: Overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the
more detailed audit plan. The process of establishing the overall audit strategy assists the auditor to determine such
matters as for example - the resources to deploy for specific audit areas, such as the use of appropriately experienced
team members for high-risk areas or the involvement of experts on complex matters. Explain the other three such
matters. [RTP-May 20]

CAQ 15: The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and
that guides the development of the audit plan. Discuss stating the process of establishing the overall audit strategy
that would assist the auditor to determine key matters. [RTP-Nov. 18]

CA KARTHIK G SHENOY | ArivuPro Academy 21

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

c. Factors for establishing for overall strategy:

(i) Identify characteristic and define scope. There are many characteristics of engagement defining
its scope. Some of characteristics are as under:
• 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
(ii) Ascertain reporting objectives to plan. This helps in the
• Timing of Audit
• Nature of communication.
Some of the instances are as follows:
• The entity’s timetable for reporting
• Organization of meetings to discuss of nature, timing and extent of audit work with
management
• Discussion with management regarding the expected type and timing of reports to be issued
including the auditor’s report
• Discussion with management regarding the expected communications on the status of audit
work throughout the engagement.
• Expected nature and timing of communications among engagement team members, including
the nature and timing of team meetings and timing of the review of work performed

CAQ 16: In establishing overall audit strategy, the auditor shall ascertain the reporting objectives of the engagement
to plan the timing of the audit and the nature of the communications required. Elucidate those cases by which auditor
can ascertain the reporting objectives of the engagement. [Nov. 19 – 4 Marks]

(iii) Factors that are significant in auditors' judgement should be considered which will contribute in
teams' effort like volume of transactions, Significant industry developments, Significant changes
in the financial reporting framework, changes in the legal environment affecting the entity.
(iv) Consider the result of preliminary engagement activities or other similar activities.
(v) Ascertain
CAQ 17: Comment nature
on the timing
following and extent
in relation (NTE)
to SAs: of resources
Auditor necessary
shall establish an overall strategy that sets the scope,
timing and direction of the audit, and that guides the development of the audit plan”. [May 11 – 5 Marks]

CAQ 18: Discuss the factors the auditor will consider while establishing the overall strategy.

CA KARTHIK G SHENOY | ArivuPro Academy 22

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

Development of Audit plan

1. An audit plan can be developed to address the various matters identified in the overall audit strategy,
taking into account the need to achieve the audit objectives through the efficient use of the auditor’s
resources.
2. The audit plan is more detailed than the overall audit strategy that includes the nature, timing and
extent of audit procedures to be performed by engagement team members.
3. Understanding client’s business is one of the important principles in developing an audit plan.
4. SA-300 states that auditor shall develop an audit plan that shall include description of –
(i) The nature, timing and extent of planned risk assessment procedures
(ii) The nature, timing and extent of planned further audit procedures at assertion level
(iii) Other planned audit procedures
Relationship between audit strategy and audit plan
1. Audit strategy sets the broad overall approach to the audit whereas audit plan addresses the various
matters identified in the overall audit strategy.
2. Audit strategy determines scope, timing and direction of audit. Audit plan describes how strategy is
going to be implemented.
3. The audit plan is more detailed than the overall audit strategy that includes the nature, timing and
extent of audit procedures to be performed by engagement team members.
4. The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete
or sequential processes, but are closely inter-related since changes in one may result in
consequential changes to the other.

CAQ 19: Discuss the relationship between overall audit strategy and audit plan.

CAQ 20: “Once the overall audit strategy has been established, an audit plan can be developed to address the various
matters identified in the overall audit strategy”. Discuss.

CAQ 21: The establishment of the overall audit strategy and the detailed audit plan are closely inter-related. Explain.
[MTP-Mar 19]

CAQ 22: Once the overall audit has been established, an audit plan can be developed to address the various matters
identified in the overall audit strategy. The establishment of the overall audit strategy and the detailed audit plan are
closely inter-related. [RTP-MAY 22]

Overall audit strategy – The auditors responsibility.

1. When discussing matters in audit strategy and audit plan, sufficient strategy is required so that
effectiveness of the audit is not compromised.

CA KARTHIK G SHENOY | ArivuPro Academy 23

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

2. The involvement of partners and other key members draws on their experience and insights there
by enhancing the effectiveness and efficiency of the planning process.
Changes to plan
1. The auditor shall update and change the strategy and the plan as required during the course of audit.
2. As a result of unexpected events, changes in conditions, evidence obtained from results of
procedures performed, the auditor may need to modify the strategy and plan.
3. This may be the case when the information comes to the auditor’s attention that differs significantly
from the information available the audit procedures were planned.
CAQ 23: The auditor shall update and change the overall audit strategy and the audit plan as necessary during the
course of the audit. Explain. [RTP-Nov 18]

CAQ 24: As a result of unexpected events, changes in conditions, or the audit evidence obtained from the results of
audit procedures, the auditor may need to modify the overall audit strategy and audit plan. Explain.
[RTP-Nov 19]

CAQ 25: Plans should be further developed and revised as necessary during the course of the audit. Explain.
[RTP-May 20]

CAQ 26: Once the audit plan has been drafted and communicated, it is obligatory on the auditor to follow the same.
[MAY 22 – 2 marks]

Planning of Supervision and Review of team member’s work

1. Auditor shall plan the nature, timing and extent.
2. While planning the above the following factors has to be considered.
a. Size & complexity of the entity.
b. Area of the audit.
c. Assessed risks of material misstatement.
d. Capabilities and competence of the members performing a work.
CAQ 27: “The Nature, timing and extent of the direction and supervision of engagement team members and review of
their work vary depending on many factors.” Explain.

CAQ 28: 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. Explain giving examples. [RTP NOV 20]
Documentation

1. The auditor shall document.

a. Overall audit strategy – Key decisions

CA KARTHIK G SHENOY | ArivuPro Academy 24

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

b. Audit Plan – planned RAP & FAP

c. Significant changes made during the engagement to the plan or strategy with reasons.
2. The documentation of the strategy is the record of any key decision considered.
3. Documentation of audit plan is a record of Plan NTE and Risk Assessment Procedures and Further
Audit Procedures.
4. The record of significant changes to strategy and plan explains why the changes were made and also
the final strategy and plan.
5. Examples of Audit Documentation:
a. Summary of discussions with entities key decision makers.
b. Documentation of audit committees’ approval of services.
c. Access letters,
d. Other communications or agreements with management, TCWG regarding scope and
changes in scope.
e. Auditors report.
f. Other reports mentioned in the engagement agreement.
CAQ 29: The auditor shall document the overall audit strategy, the audit plan, and any significant changes made during
the audit engagement to the overall audit strategy or the audit plan, and the reasons for such changes. Explain.
[MTP-Aug. 18, RTP-Nov. 18]

CAQ 30: The auditor shall document the overall audit strategy, the audit plan and any significant changes made to the
overall audit strategy or the audit plan. Explain in detail giving examples. [RTP-Nov 20]

CAQ 31: Documentation of audit plan serves as a record of the planned nature, timing and extent of risk assessment
procedures and further audit procedures at the assertion level in response to the assessed risks. What all activities in
the planning phase should form part of auditor's documentation? State with examples. [MAY 21 – 4 marks]

AUDIT PROGRAMME

Meaning
It is a list of examination and verification and steps to be applied and set out in such a way that the
inter relationship of one step to another is clearly shown and designed.
Definition
“It consists of series of verification procedures to be applied on the FS and its items and accounts of a
given company for the purpose of obtaining sufficient evidence to unable the auditor to express an
informed opinion on such statements.”

CA KARTHIK G SHENOY | ArivuPro Academy 25

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

In other words, audit programme is a detailed plan of applying the procedures in the given
circumstances with instructions for the appropriate techniques to be adopted for accomplishing the
objectives.

CAQ 32: Write short note on: Audit Programme. [Nov. 06 – 4 marks]

CAQ 33: “An audit programme is a detailed plan of applying the audit procedure in the given circumstance for
accomplishing the audit objectives”. Discuss.

Some Important points on AP

(i) One programme not practicable:
a. Evolving one audit programme applicable to all business under all circumstances is not practicable.
b. The factors that vary are –
• vary in nature, size and composition;
• work which is suitable to one business may not be suitable to others;
• efficiency and operation of internal controls and
• the exact nature of the service to be rendered by the auditor.
CAQ 34: Evolving one audit programme applicable to all audit engagements under all circumstances is not practicable.
Explain [RTP-May 18]

CAQ 35: Evolving one audit programme applicable to all business under all circumstances is not practicable. Explain
clearly stating in detail the meaning of audit programme. [RTP-May 18]

(ii) Keep an open mind:

• As experience is gained by actually carrying out the work, the programme may be altered to
take care of situations which were left out originally, but are found relevant for the particular
concern.
• Similarly, if any work originally provided for proves beyond doubt to be unnecessary or
irrelevant, it may be dropped
• The assistant engaged in the job should be encouraged to keep an open mind beyond the
programme given to him. He should be instructed to note and report significant matters
coming to his notice, to his seniors or to the partners or proprietor of the firm engaged for
doing the audit.

CA KARTHIK G SHENOY | ArivuPro Academy 26

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

CAQ 36: M/s TP & Co., a firm of Chartered Accountants, is auditor of KSR Ltd. for many years. KSR Ltd. has diversified
their business into newer areas during the last year. The senior member of the audit team handed over the standard
audit programme of earlier years to the audit assistants and instructed them to follow the same. The assistants are
conducting the audit accordingly. Whether the attitude of the audit assistants is justified or they are required to keep
an open mind? Guide them. [NOV – 4 marks]

(iii) Periodic Review:

• There should be periodic review of the audit programme to assess whether the same
continues to be adequate for obtaining requisite knowledge and evidence about the
transactions.
• On the basis of an obsolete programme and, for this negligence, the whole audit may be held
as negligently conducted and the auditor may have to face legal consequences.
• This is done so that inadequacies or redundancies of the programme may be removed.
• Many persons believe that this brings an element of rigidity in the audit programme. This is
not true provided the periodic review is undertaken to keep the programme as up-to date
as possible and by encouraging the assistants on the job to observe all salient features of the
various accounting functions of the client.
CAQ 37: “The utility of the audit programme can be retained and enhanced only by keeping the programme and also
the client’s operations and internal control under periodic review so that inadequacies or redundancies of the
programme may be removed”. Explain. [RTP-May 19]

CONSTRUCTING AN AUDIT PROGRAMME

The following points shall be considered while constructing the programme

1. Stay within the limits - Stay with the scope and limitation of the engagement.
2. Prepare a written audit programme setting forth the procedures that are needed to implement the
audit plan.
3. Get enough proof - Determine the evidences are reasonably available and identify the best evidence
for deriving a satisfaction.
4. Relevance - Apply only those steps and procedures which are useful in the specific situations.
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. Error - Consider all possibilities of error.
7. Co-ordination - Coordinate the procedures to be applied to related items.

CA KARTHIK G SHENOY | ArivuPro Academy 27

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

CAQ 38: Arpana Hospitals Ltd having Gross Professional Charges of ₹50 crores is engaged in providing healthcare
services. STP & Co., a firm of auditors is appointed as its auditors. Advise what special points to be kept in mind for the
purpose of construction of an Audit programme. Explain. [RTP-May 18]

CAQ 39: Explain the significant points auditor would consider while developing an audit programme. [RTP-May 19]

CAQ 40: List out the points that should be kept in mind by the auditor for the purpose of constructing an audit
programme. [May 19 – 3 Marks]

CAQ 41: Discuss the points to be considered by auditor for the purpose of constructing an audit programme.
[Nov 19 – 4 Marks]

It is designed to provide audit evidence

1. It means the information used by the auditor in arriving at the conclusion on which the opinion is
based.
2. What is the best evidence for testing the accuracy is a matter of expert’s knowledge and experience.
3. It is true that in all cases one procedure may not bring the highest satisfaction and it may be dangerous
for the auditor to ignore any evidence that is available
4. The auditor, however, has to place appropriate weight on each piece of evidence and accordingly
should prescribe the priority of verification.
5. The audit evidence is generally classified into
a. Documentary
b. Physical examination
c. Statements and explanations of management.
d. Statements and explanation of third party.
e. Arithmetical calculation by the auditor.
f. State of internal control and internal check.
g. Inter relationship of various accounting data.
h. minutes book.
i. subsequent action by client and by others.
CAQ 42: Evidence is the very basis for formulation of opinion and an audit programme is designed to provide for that
by prescribing procedures and techniques. Analyse and explain with the help of example of evidence in respect of Sales.
[RTP-May 20]

CAQ 43: In most of the assertions much of the evidence be drawn and each one should be considered and weighed to
ascertain its weight to prove or disprove the assertion. An auditor picks up evidence from a variety of fields. Analyse
and explain with the help of examples. [RTP-Nov 20]

CA KARTHIK G SHENOY | ArivuPro Academy 28

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

DEVELOPING THE AUDIT PROGRAMME AND ADVANTAGES, DISADVANTAGES

1. Audit planning – Generally begins at the conclusion of previous year audit along with related
programme. Sometimes it should be reconsidered for modification based on auditor’s review of:
a. Internal control
b. Preliminary evaluation
c. Compliance procedures
d. Substantive procedures
2. Written audit programme – The auditor should prepare AP in writing setting forth the procedures
that are needed.
3. Audit objective and instructions to assistants – AP may also have the objective for each area and set
of instructions with details which will serve as means to control and proper execution of work.
4. Reliance on internal control – The auditor should have an understanding of accounting system and
related ICS on which rely in determining NTE of audit procedures.
a. May conclude on relying on ICS is an effective and efficient way to conduct his audit
b. May decide not to rely on ICS when there are other efficient ways of obtaining SAAE. Also
consider:
a. Timing of procedures.
b. Co-ordination of assistance from the client.
c. Availability of assistants.
d. Involvement of other auditors or experts
5. Timing of performance of audit procedures – Auditor has flexibility in deciding when to perform the
procedures. In some cases, auditor will have no discretion as to timing.

ADVANTAGES OF AUDIT PROGRAMME

1. Can carry out the audit with clear set off instructions.
2. Provides a total perspective of work to be performed.
3. Selection of assistance becomes easier on the basis of their capability when the work is planned,
defined and segregated.
4. Reduces danger of ignoring or overlooking certain books and records.
5. Accountability – The assistants will have the responsibility for the work carried on by them
individually. It may be raised back to the assistant.
6. The auditor can have the control over the progress of various audits.
7. This serves as a guide in succeeding year.

CA KARTHIK G SHENOY | ArivuPro Academy 29

 AUDITING & ETHICS | AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

8. Serves as the evidence in case of any charges brought against the auditor.
CAQ 44: Discuss the following: Despite of several disadvantages, audit programme is required to start an audit.
[Nov 13 – 5 Marks]

CAQ 45: How does an audit programme help to plan and perform the audit?

DISADVANTAGES OF AUDIT PROGRAMME

1. It may become mechanical and the work may be carried out without any understanding of the object
in the entire audit scheme.
2. Becomes too rigid and inflexible in case of changes in the business operations, staff and internal
control.
3. Inefficient assistants may take shelter behind the programme.
4. A hard and fast programme may kill the initiative of efficient assistants.

CAQ 46: What are the disadvantages of the use of an Audit Programme. [May 07 – 4 Marks]

CAQ 47: Write short note on: Disadvantages of the use of an Audit Programme. [May 12 – 4 Marks]

Extract of Sample audit programme pertaining to sales of an entity

Name of the concern Fine Industries

Financial Year 2022-23

Prepared by Priya (with date)

Reviewed by Raj (with date)

Approved by Suresh (with date)

Serial Extent of Basis of

Nature of Procedure Done by
Number Check Sample
(a) Vouch few sales invoices from copies available in
record of the concern.
(b) Trace these invoices into the account books of
the concern
(c) Verify few invoices with e-way bills generated on
the e-way bill portal
(d) Trace few sales invoices into the stock records to
ensure that sold quantities have been reduced
from stocks
(e) Trace also few sales invoices into accounts of
buyers

CA KARTHIK G SHENOY | ArivuPro Academy 30