2. AUDIT STRATEGY, AUDIT PLANNING AND AUDIT PROGRAMME

1 AUDITOR’S RESPONSIBILITY TO PLAN AN AUDIT OF FINANCIAL STATEMENTS
SA 300- Planning an audit of financial statements

1.1 Why planning an audit is necessary? - Its Benefits
1. Helping the auditor to devote appropriate attention to important areas of the audit.
2. Helping the auditor identify and resolve potential problems on a timely basis.
3. Helping the auditor properly organize and manage the audit engagement.
4. Assisting in the selection of engagement team members with appropriate levels of
capabilities and competence.
5. Facilitating the direction and supervision of engagement team members.
6. Assisting, where applicable, in coordination of work done by others.
1.2 Nature of Audit Planning- A Continuous and iterative process
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
3. The determination of materiality.
4. The involvement of experts.
5. The performance of other risk assessment procedures.
 Involvement of key engagement team members in planning audit
 Discussion of elements of planning with entity’s management
2 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
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(A) Performing procedures regarding the continuance of the client relationship
(B) Evaluating compliance with ethical requirements, including independence
(C) Establishing an understanding of terms of engagement
(II) 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, and
guides the development of the more detailed audit plan.
The process of establishing the overall audit strategy assists the auditor to determine,
subject to the completion of the auditor’s risk assessment procedures, such matters as:-
(i) The resources to deploy for specific audit areas
(ii) The amount of resources to allocate to specific audit areas
(iii) When these resources are to be deployed
(iv) How such resources are managed, directed and supervised
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
 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
 The entity’s timetable for reporting
 Organization of meetings to discuss of nature, timing and extent of audit work
 Discussion with management regarding the expected type and timing of reports
 Discussion with management regarding the expected communications
 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
 Other significant relevant developments
(d) Consider the results of preliminary engagement activities
(e) Ascertain the nature, timing and extent of resources
(B) Development of Audit plan
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.
3 RELATIONSHIP BETWEEN AUDIT STRATEGY AND AUDIT PLAN

The establishment of the overall audit strategy and the detailed audit plan are not
necessarily discrete or sequential processes but are closely inter – related
4. OVERALL AUDIT STRATEGY AND THE AUDIT PLAN- THE AUDITOR’S

RESPONSIBILITY
5 CHANGES TO PLANNING DECISIONS DURING THE COURSE OF AUDIT

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.
6 PLANNING SUPERVISION AND REVIEW OF WORK OF ENGAGEMENT TEAM

MEMBERS
1. The size and complexity of the entity.
2. The area of the audit.
3. The assessed risks of material misstatement
4. The capabilities and competence of the individual team members

7. DOCUMENTATION
(a) the overall audit strategy
(b) the audit plan and
(c) any significant changes made during the audit engagement
8. 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.
8.1 Evolving one audit programme- Not Practicable for All businesses
Businesses vary in nature, size and composition;
8.2 The Assistant to keep an open mind
The assistant engaged in the job should be encouraged to keep an open mind beyond
the programme given to him.
8.3 Periodic review of the audit programme
Whether the same continues to be adequate for obtaining requisite knowledge and
evidence.
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.
8.4 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
(3) Determine the evidence reasonably available
(4) Apply only those steps and procedures.
(5) Include the audit objectives
(6) Consider all possibilities of error
(7) Co-ordinate the procedures to be applied to related items.

8.5 Audit Programme- Designed to provide audit evidence
(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) State of internal controls and internal checks
(g) Inter-relationship of the various accounting data
(h) Subsidiary and memorandum records
8.6 Advantages and disadvantages of an audit programme

The advantages of an audit programme are:-
(a) Total and clear set of instructions.
(b) Total perspective of the work to be performed.
(c) Selection of assistants for the jobs.
(d) Without a written and pre-determined programme, there is always a danger of ignoring
or overlooking certain books and records.
(e) The assistants, by putting their signature on programme, accept the responsibility.
(f) The principal can control the progress.
(g) It serves as a guide for audits to be carried out in the succeeding year.
(h) Serves as evidence in the event of any charge of negligence.
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
(d) A hard and fast audit programme may kill the initiative of efficient

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1 AUDITOR’S RESPONSIBILITY TO PLAN AN AUDIT OF FINANCIAL STATEMENTS

SA 300- Planning an audit of financial statements

2 PLANNING PROCESS - ELEMENTS OF PLANNING

CA AMIT TATED AT ACADEMY - MUMBAI AUD - 7

CA AMIT TATED AT ACADEMY - MUMBAI AUD - 8

3 RELATIONSHIP BETWEEN AUDIT STRATEGY AND AUDIT PLAN

4. OVERALL AUDIT STRATEGY AND THE AUDIT PLAN- THE AUDITOR’S

5 CHANGES TO PLANNING DECISIONS DURING THE COURSE OF AUDIT

6 PLANNING SUPERVISION AND REVIEW OF WORK OF ENGAGEMENT TEAM

CA AMIT TATED AT ACADEMY - MUMBAI AUD - 9

CA AMIT TATED AT ACADEMY - MUMBAI AUD - 10

8.6 Advantages and disadvantages of an audit programme

CA AMIT TATED AT ACADEMY - MUMBAI AUD - 11

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