Explore the comprehensive study of Audit Planning under ISA 300. Understand the importance of preliminary planning activities, development of audit strategy and plan, changes during the audit, and the role of direction, supervision, and review. Learn about documentation requirements and the special considerations for initial audit engagements and small entities. Stay informed about the changes from previous ISA and the vital role of obtaining knowledge of the entity’s business in risk assessment procedures.
The main concern of auditor is to perform his engagement in an effective manner. Planning an audit involves developing an overall strategy (This includes defining scope, emphasis to be placed, timing and conduct of audit engagement) and Audit Plan (It may consists of nature, timing and extent of audit procedures to be performed and the rationale for their selection. Planning helps to identify the important areas of potential problem. Planning also assist in assignment of work to team members, facilitate direction, supervision & review of their work. The nature and extent of planning activities will depend upon – the Size and Complexity of business, Previous experience of auditors with the firm, auditors understanding of firm & its environment and understanding of Internal Control System of Firm. Planning the Audit includes following :
- Performing preliminary planning activities
- Developing Audit Strategy
- Developing Audit Plan
- Considering changes in Audit decisions
- Direction, Supervision and Review of Audit work
- Documenting matters related to planning activities
Planning is a continuous process in auditing which starts after the completion of previous year audit and ends at the conclusion of current year audit. Auditor may discuss elements of planning (Including Strategy and procedure to b employed) with auditee ( i.e. owner and management)to improve efficiency and effectiveness of the audit.
Preliminary Planning Activities :
Following Activities are to be performed by the Auditor before strategy development:
- Must assure that there are condition exist which intimate that Auditor should refuse fresh audit assignment or should discontinue audit assignment.
- No Ethical issues exist which may cause refusal of engagement (Including Independence and communication with previous auditors)
- To gain an understanding of the scope and terms of engagement.
The purpose of conducting pre planning activities is to ensure that there are no condition exist which may affect the effectiveness of the audit. This ensure that audit engagement is :
- Not affected by the issues related with independence or ability to perform audit.
- No threats exist related with management integrity which may affect auditor’s willingness to accept assignment.
- There is no misunderstanding as to scope and terms of engagement.
The Development of Audit Strategy :
The Audit Strategy should describe the Scope and Conduct of Audit so as to reduce audit risk to an acceptably low level. The purpose of audit strategy is to develop response to overall risk of material misstatement at Financial Statement Level (Earlier this was know as Audit plan in SAP 8) and to develop audit plan (which was previously known as audit procedures in SAP 8)) address assertion issues – at transaction, balance and disclosure level.
Audit strategy (Earlier known as Audit Plan in SAP 8 issued by ICAI) may be in the form of memorandum that may contain – decision regarding the overall scope, main areas of emphasis and areas where audit will be conducted, response of auditor towards financial statement level and Material issues which emerged from audit Plan (i.e. related with assertions as to transaction, balances and disclosures). It is the professional judgment which decides the form and content of the overall audit strategy. Audit Strategy may be simplified in cases where audit is being conducted for small firms – in those circumstances strategy may be developed by verbal communication between team members of auditor and between audit team and management.
The Development of Audit Plan:
Audit plan converts audit strategy developed by the auditor into a comprehensive description of the work to be performed. What audit procedure will be employed to obtain sufficient & appropriate audit evidences to achieve audit objectives. It is outline of the work to be performed by engagement team members.
Audit plan details the nature, timing and extent of planned audit procedures to be applied related with assertions as to transactions, account balances and disclosures. This involves developing the audit plan for the performance of risk assessment procedures and further audit procedure in response to assessed risk. This may include both procedures – to test the effectiveness of internal control systems and decision as to nature, timing and extent as to substantive procedures.
Form and extent of details depends on professional judgment (Judgment may based on size & complexity of the entity, materiality, other evidences and Experience of audit team).
Changes in Planning during conduct of Audit:
Planning is a continuous and iterative process throughout the engagement. Due to changes in conditions or the audit evidence obtained from the results of audit procedures (both substantive and compliance), auditor may need to modify the overall audit strategy and audit plan (i.e. Changes in nature, timing and extent of further audit procedure). In changed circumstances, the auditor re evaluate the planned audit procedures, based on the revised consideration of for all or some of the classes of transactions, balances or disclosures and related assertions.
Direction, Supervision and Review :
In planning, auditor also details timing and extent of direction, supervision and review (Of work of audit team) to be carried out. This decision depends on – size and complexity of the entity, area of audit, risk of misstatement and qualification of persons conducting audit. Direction, Supervision and Review can also done by way of completion checklists and other offsite supervision methods.
Direction, Supervision and Review may bring across situations like – selection of inappropriate items for sampling or failing to properly conclude on audit procedure performed.
Documentation :
The auditor should document the overall audit strategy and the audit plan, including reasons for significant changes made during the audit engagement. In respect of documentation of reason for significant changes to audit strategy and plan – the auditor’s response to the events, conditions, or results of audit procedures that resulted to such changes. The manner of documentation of Audit Strategy and Audit Plan depends on professional judgment of the auditor.
Changes from Previous ISA:
- To obtain knowledge of entity’s business is an important part of planning in audit. The Audit Risk has been amended by the IFAC so as to include in detail the taking knowledge of business of the entity in risk assessment procedures, consequently this process has been eliminated from the ISA 300. The Audit plans begins by planning risk assessment procedures and once these procedures have been performed it is updated and changed to reflect the further audit procedures needed to respond to the results of risk assessments.
- In addition to changes discussed above, New ISA 300 includes :
- Preliminary planning activities
- Guidance on matters auditor to consider in planning timing and extent of – direction, supervision and review.
- Revised Documentation requirements.
- Guidance on the special planning consideration for initial audit engagements.
- The special consideration in the audit of small Entities.
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