Discuss the audit planning process in an efficient manner

Planning the audit includes establishing the overall audit strategy for the engagement and developing an
audit plan, which includes, in particular, planned risk assessment procedures and planned responses to
the risks of material misstatement.

In every human undertaking or engagement, it is necessary to plan the course of actions before these
actions are taken. The complexity of the business of the client, its form, and its commercial
environment, all affect the nature and extent of the planning required.

Every human effort or engagement necessitates the planning of actions before they are carried out. The
nature and scope of the planning required are influenced by the complexity of the client's business, its
form, and its commercial environment. A well-planned engagement may help avoid over- or under-
testing, produce more relevant documentation, and lower the risk of audit failure or a potential
professional liability claim, all while saving time in the long run. Establishing the engagement's overall
audit strategy and building an audit plan, which includes, in particular, planned risk assessment
techniques and planned responses to substantial misstatement risks, are all part of the audit planning
process. PSA 315 requires the auditor to get an adequate awareness of the company and its
surroundings, including its internal controls, as this would be the first major audit planning activity. Such
knowledge includes learning about the entity's industry, regulatory, and other external factors, such as
the financial reporting framework, the entity's nature, including its selection and application of
accounting policies, objectives and strategies, and the related business risks that could result in a
material misstatement of the financial statements, which can be obtained through interviews with
managers and employees and the management letter points. The assessment of the risk of non-
compliance would be the next significant audit planning action. To plan the audit, the auditor should
gain a general understanding of the legal and regulatory framework that applies to the entity and the
industry, as well as how the entity is complying with that framework, because some laws and
regulations may create business risks that have a significant impact on the entity's operations. The next
step in the audit planning process would be to determine materiality and estimate audit risk. In auditing,
materiality can be defined as the biggest amount of financial statement misrepresentation that the
auditor can allow, or the lowest aggregate amount that might misstate any one of the financial
statements. Materiality is a matter of professional judgment that entails both quantitative and
qualitative considerations. The auditor should consider materiality at the planning stage to identify the
scope of audit procedures and throughout the audit completion phase to assess the impact of
misstatements on the financial statements. Because auditing financial statements does not
ensure that all major misstatements are found due to inherent risks, the auditor's
role is to design the audit to offer reasonable confidence that the financial
statements as a whole are free of serious misstatements. Additionally, audit risk
may be assessed by multiplying the inherent risk by both the control and
detection risks. Next would be performing the analytical procedures, which
comprises of the following steps including developing expectations regarding the
financial statements, comparison of the expectations with the financial
statements under audit and investigating significant unexpected differences to
determine whether the financial statements which may indicate risk of material
misstatements. And lastly would be the development of the overall audit strategy,
detailed audit plan and preliminary audit programs.

The next major audit planning activity would be assessing the possibility of non-compliance. In order to
plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework
applicable to the entity and the industry and how the entity is complying with that framework because
some laws and regulations may give rise to business risks that have a fundamental effect on the
operations of the entity.

 Establishing materiality and assessing audit risk would be the next measure of the audit planning. In
audit, materiality may be viewed as the largest amount of misstatement that the auditor could
tolerate in the financial statements; or the smallest aggregate amount that could misstate any one
Materiality is a matter of professional judgment and
of the financial statements.
necessarily involves quantitative factors and qualitative factors. Materiality
should be considered by the auditor in the planning stage, to determine the
scope of audit procedures and completion phase of the audit to evaluate the
effect of misstatements on the financial statements.
Because auditing financial statements does not ensure that all major
misstatements are found due to inherent risks, the auditor's role is to design the
audit to offer reasonable confidence that the financial statements as a whole are
free of serious misstatements. Additionally, audit risk may be assessed by
multiplying the inherent risk by both the control and detection risks.
Next would be performing the analytical procedures, which comprises of the
following steps including developing expectations regarding the financial
statements, comparison of the expectations with the financial statements under
audit and investigating significant unexpected differences to determine whether
the financial statements which may indicate risk of material misstatements.