Chapter 7

Audit Planning

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Key to chapter content ICONS

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CHAPTER 7:
Audit Planning

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 Overall Objectives
To obtain:
§ reasonable assurance; that
§ Financial statements as a whole; are
§ Free from material misstatement

Auditor to express an opinion

§ financial statements are prepared;
§ in all material respects
§ In accordance with an applicable financial reporting
framework
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Audit Conducted in Accordance with ISAs

The auditor cannot report compliance with the ISAs in the

auditor's unless all ISAs that are relevant to the audit
have been complied with.

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Audit Planning Responsibility

The engagement partner is responsible for planning the

audit and developing audit strategy and audit plan.

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Audit Planning Scope

Audit Strategy
• Scope
• Timing
• Direction

Audit Plan
• Nature Communication
• Timing with TCWG
• Extent

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Planning Cycle Completion
of final audit

Year-end Planning for

audit next cycle

Plan for Account for

year-end changes in
audit environment

Interim audit

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Planning Activities
Evaluation of ability to carry out audit

Assess findings from prior audit

Develop audit strategy and plan

Establish Resources required

Establish direction, supervision, and review

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 Preliminary Engagement Activities

Auditor should ensure that all events or circumstances

that may adversely affect his ability to perform the audit
have been considered.

Similar procedures to initial auditor appointment (Chapter 5)

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Audit Strategy

Scope
• What needs to
be audited

Direction Timing
• How to • When to
conduct perform
audit procedures

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Audit Resources

Audit Team
• Available hours
• Skills
• Experience

Timing Assignment
• Communications
• High-risk areas
• Timing of
• Complex areas
procedures
• review • Control testing

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Timetable

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Interim Audit

§ Reduces the workload and time pressure of the final

audit;
§ Helps plan the year-end audit

Procedures include:
§ Planning procedures
§ Test of controls
§ Substantive procedures

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Effect of Interim Audit on Final Audit
Findings from interim audit:

§ Operating effectiveness of internal controls

§ Evidence obtained from audit procedures performed
§ Misstatements detected

The above findings will affect the audit plan for the year-end
audit.

Focus is on substantive procedures during year end.

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Activity: Year-end Audit Visit

What audit procedures are typically carried

out at a year-end audit visit?

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 Answer to activity: Year-end Audit Visit

§ Attendance at physical inventory count

§ Other asset inspections (e.g. property) or counts (e.g. cash)
§ Requesting bank confirmation letters
§ Other external confirmations (e.g. trade receivables)

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Stages of an Audit Summary
Interim Audit Final Audit
Timing Before year end At or after year end
Required No Yes
Procedures Primarily tests of controls with Primarily substantive
some substantive procedures procedures or, when
when risk is low and evidence appropriate/necessary, a
is available. combination of substantive
procedures and tests of
controls.
Basis for audit Only when combined with Evidence gathered during the
opinion evidence gathered during the final audit can be used as the
final audit. basis for the audit opinion,
even when no interim
procedures.
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Audit Plan

The auditor should develop an audit plan for the audit to

reduce audit risk to an acceptably low level.

Contains descriptions of risk assessment, test of controls

and audit procedures to be carried out.

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Audit Plan

Nature

Timing Extent

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Changes to Audit Plan

Unexpected
events

Unexpected
Unexpected
results from
changes
procedures

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Direction, Supervision and Review

Risk of Level of audit

material team
misstatement experience

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Documentation

The auditor should document the overall audit strategy and

the audit plan, including any significant changes made
during the audit engagement.

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 Chapter 7: Summary
§ The engagement partner is responsible for audit planning, which
includes developing an overall audit strategy and the audit plan.
§ Preliminary planning activities include reassessing management
integrity, ethical requirements, threats to fundamental principles
and reviewing the terms of engagement.
§ The audit strategy establishes the scope, timing and direction of
the audit and guides the development of the audit plan.
§ The audit plan includes a description of the nature, timing and
extent of audit procedures.
§ The audit strategy and audit plan should be revised as
necessary as the audit progresses.
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 Chapter 7: Practice questions

Study Question Bank

Final Audit Planning

25 mins
Documentation

For AA
ØAttempt the Study Question Bank questions listed above after studying this chapter
ØAttempt Revision Question Bank questions in your revision phase, after studying all chapters

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Thank you

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