PLANNING

Purpose of audit planning

The objective of the auditor is to plan the audit so that it will be
performed in an effective manner.
Audits are potentially complex, risky and expensive processes. Although
firms have internal manuals and standardised procedures it is vital that
engagements are planned to ensure that the auditor:
• devotes appropriate attention to important areas of the audit
• identifies and resolves potential problems on a timely basis
• organises and manages the audit so that it is performed in an
effective and efficient manner
• selects team members with appropriate capabilities and
competencies
• directs and supervises the team and reviews their work
• effectively coordinates the work of others, such as experts and
internal audit.
Planning Activities
– developing the audit strategy
– developing an audit plan.

Audit Strategy
Characteristics of engagement
 financial reporting framework
 Industry specific reporting requirement
  Knowledge of business
 Internal audit function
 Service Organisation
 Computer Assisted audit techniques
 Timing of audit work
 Availability of client staff
Reporting objectives, Timing and communication
 Timetable of reporting
 Communication with client
 Communication among team members
 Communication with third parties
Nature timing and extent of resources
 Selection of audit team
 Budget
Other Significant Factors
 Materiality
 Assessed risk of material misstatement
 Need for professional skepticism
 Internal control of the client
 Significant developments affecting entity
 Changes in laws and regulations
 Changes to accounting standards
AUDIT PLAN
Once the audit strategy has been established, the next stage is to
develop a specific, detailed plan to address how the various matters
identified in the overall strategy will be applied.

The audit plan should include specific descriptions of:

• the nature, timing and extent of risk assessment procedures.
• the nature, timing and extent of further audit procedures, including:
– what audit procedures are to be carried out
– who should do them
– how much work should be done (sample sizes, etc.)
– when the work should be done (interim vs. final).
• any other procedures necessary to conform to ISA's.

DOCUMENTATION
ISA (International Standards on auditing) 230 Audit Purposes of audit
documentation
Documentation, requires auditors to prepare and retain written
documentation that:
• Provides a sufficient appropriate record of the auditor’s basis for the
audit report.
• Provides evidence that the audit was planned and performed in
accordance with ISAs and applicable legal and regulatory requirements.
• Assists the engagement team to plan and perform the audit.
• Assists members of the engagement team responsible for supervision
to direct, supervise and review the audit work.
• Enables the engagement team to be accountable for its work.
• Retains a record of matters of continuing significance to future audits.

Documentation should be sufficient to enable an experienced auditor,

with no previous connection to the audit, to understand: the nature,
timing and extent of audit procedures performed.
• the results of the procedures performed and the evidence obtained.
• the significant matters arising during the course of the audit and the
conclusions reached thereon, and significant professional judgements
made in reaching those conclusions.
Audit documentation should prove that the auditor has complied with
professional and ethical standards and therefore the work has been
performed to the required standard. If legal action is taken against the
auditor, the audit files will provide the auditor's defence in court that
they have not been negligent in their duties.
Retention
Audit files should be assembled in a timely fashion. This is, ordinarily,
no longer than 60 days after the date of the auditor's report.
Once complete the files should be retained as long as required by
national law. However, ISA 230 Audit Documentation, states that this
period is, ordinarily, no shorter than five years from the date of the
auditor's report. This should therefore be considered the minimum
retention period.
AUDIT EVIDENCE
Qualities of audit evidence
 Sufficient:
There needs to be ‘enough’ evidence to support the auditor's conclusion. This is a matter of
professional judgement. When determining whether there is enough evidence the auditor must
consider.

• the risk of material misstatement

• the materiality of the item
• the nature of accounting and internal control systems
• the auditor's knowledge and experience of the business
• the results of controls tests
• the size of a population being tested
• the size of the sample selected to test
• the reliability of the evidence obtained.

 Appropriate
Appropriateness of evidence breaks down into two important concepts:
Reliability
Auditors should always attempt to obtain evidence from the most
trustworthy and dependable source possible. Evidence is considered
more reliable when it is:
• obtained from an independent external source
• generated internally but subject to effective control
• obtained directly by the auditor
• in documentary form
• in original form.
Broadly speaking, the more reliable the evidence the less of it the
auditor will need. However, if evidence is unreliable it will never be
appropriate for the audit, no matter how much is gathered.
Relevance
To be relevant audit evidence has to address the objective/purpose of a
procedure. For example, when attending an inventory count, the
auditor will:
 select a sample of items from physical inventory and trace them
to inventory records to confirm the completeness of accounting
records.
 select a sample of items from inventory records and trace them to
physical inventories to confirm the existence of inventory assets.
FINANCIAL STATEMENT ASSERTIONS
Transactions (PL) and events
 Occurrence
 Completeness
 Accuracy
 Cut-off
 Classification
Account Balances
 Existence
 Rights & Obligations
 Completeness
 Valuation and Allocation
Presentation & Disclosures
 Occurrence
 Rights and obligation
 Completeness
 Classification & Understandability
 Accuracy and valuation

Occurrence – the transactions and events recorded actually occured

and pertain to the entity.
Completeness – all transactions, assets, liabilities and equity interests
have been recorded that should have been recorded.
Accuracy – amounts, data and other information have been recorded
and disclosed appropriately.
Cutoff – transactions and events have been recorded in the correct
accounting period.
Classification and understandability – transactions and events have
been recorded in the proper accounts, and described and disclosed
clearly.
Existence – assets, liabilities and equity interests exist.
Rights and obligations – the entity holds or controls the rights to assets
and liabilities are the obligations of the entity.
Valuation and allocation – assets, liabilities and equity interests are
included in the financial statements at appropriate value.