Chapter 2 - Audit Strategy, Planning and Programming

Audit Strategy Audit Planning Audit Programming

Meaning: Designing Audit Approaches to achieve necessary audit  Developing an overall plan for the  Detailed plan of work

Meaning

Meaning
assurance at the lowest cost. expected scope and conduct of the  comprises of techniques and
1. Obtaining knowledge of business: audit and procedures,
It provides a frame of reference within which the auditor exercises  Developing an audit programme
 may also contain objectives
his professional judgement to assess risk, to plan audit, to evaluate showing NTE of Audit procedures
for each audit step.
audit evidence and providing quality services.  Acquiring knowledge of client  Nature of business.
2. Performing Analytical Procedures at Initial Stages: To assess the accounting system, policies and  Overall Plan

Matters to be
considered
Aspects to be
potential for material misstatement in the F.S. as a whole. internal control procedures.  System of internal control and
accounting procedures.

covered
3. Evaluating Inherent Risk:  Establishing the expected degree
On the basis of prior audit experience, controls exercised by of reliance on internal control.  Size and structure of
Steps involved in Audit Strategy

management, significant changes since last assessment. organization.

 Determining the NTE of audit
Factors to be evaluated to assess inherent risk  Information regarding the
At the level of F.S. At the level of A/c Balance
procedures. organization.
 Integrity of Management.  Quality of Accounting System.  Coordinating the work to be  Accounting policies followed.
 Management experience  Susceptibility to Misstatement performed.
 Changes in management / Misappropriation of assets.  To devote attention to important areas  Draw a broad outline

First Time Audit

Development of Audit programme
 Filled up the details on a

Importance of
 Pressures on Management  Complexity of transactions.  Identify & resolve potential problems.
consideration of deficiencies

planning
 Nature of entity business.  Degree of judgement involved.  Organized and managed audit.
in internal control.
 Factors affecting industry.  Unusual transactions  Selection of suitable ET.
 Coordination of work done  Determine the special
4. Evaluating Internal Control System: procedures needs to be
By documenting the extent of computerization, preparing/updating  Direction and supervision of applied.
flowcharts to record the transactions. engagement team.
5. Formulating Audit Strategy: Requires consideration of:  Terms of engagement Review earlier programme
 Engagement objective  Nature & timing of reports and modified on account of:

Factors to be

Engagement
considered
 Experience gained during

Subsequent
 Knowledge of clients business  Legal or statutory requirements.
 Accounting policies & changes therein. the previous audit.
 Preliminary judgements as to materiality
 Effects of new accounting/auditing  Important changes in
 Identified inherent risks internal control system,
pronouncements.
 Extent of compliance testing  Identification of significant audit areas. accounting procedures etc.
 NTE of Substantive testing  Setting of materiality levels.  Evaluation of internal
 Points relating to planning and controlling the audit.  Degree of reliance on internal control. control for current year.
1. Employment of Qualitative Resources. 1. Substantial increase in Volume of
Relationship - Audit Strategy & Audit Planning turnover.

requiring changes
2. Allocation of appropriate quantity of resources. 2. Significant changes in accounting

Circumstances
Benefits

 Inter-related to each other because change in procedures.

3. Determining the timing of deployment of resources.
one would result change in other. 3. Observation w.r.t. ineffective internal
4. Better management of resources in terms of direction,  Audit strategy is prepared before the audit plan control.
supervision, timing of team meetings etc. 4. Substantial increase in book debts or
and provides the guidelines for developing the inventory.
audit plan. 5. Suspicion as to misappropriation of assets.

Compiled by: CA. Pankaj Garg Page 42