AUDIT PLANNING & DOCUMENTATION

The need for planning an audit

ISA 300 “ Planning the audit states: “ Auditors should
plan the audit work so as to perform the audit in an
effective manner”
Planning entails developing a general strategy and a
detailed approach for the expected nature, timing and
extent of the audit.
Cont’d
Auditors formulate the general audit strategy in an overall audit
program, which sets the direction for the audit and provides
guidance for the development of the detailed audit plan. The
audit plan sets out the detailed procedures required to
implement the audit strategy
Planning matters
The following matters should be considered and addressed
thoroughly at the planning stage:
-Business risk assessment, risk management and performance
-General planning matters
Business risk assessment, Risk Management & Performance
measurement

Risk based auditing

This is an approach to auditing where audit effort(time &
experienced staff) is directed to areas of the financial
statements where misstatements are most likely. This
improves efficiency of the audit and reduces audit risk.
There are two major approaches used in risk based auditing,
the audit risk approach and the business risk approach. The
former originated in the 1970s and is slowly becoming
obsolete, while the latter emerged in the 1990s.
Business risk approach
This approach is also known as the top down approach. It
assess general risks first and then more specific risks
evaluated. The auditor gains understanding of management’s
current and future business strategy ( the big picture), core
business processes, key performance indicators and
associated risks and controls in place.
The auditor would compare the developed expectations with
the actual performance as reflected in the financial reports.
Cont’d

Audit program: summary of how the audit is to be conducted

at high level, whilst the detail is provided in the audit plan
Implications of using the business risk approach
Analytical procedures are used extensively in order to obtain a
better understanding of the business.
The auditor concentrates on high level control assessment (e.g
control environment, corporate governance, supervision and
monitoring) and reduces low level control
Cont’d
Detailed substantive testing is reduced since the objective is to
understand the business as opposed to strictly substantiating
financial statement figures.
Advantages
-better business advise from audit can be received
-business risk is reduced, reducing audit risk and possible
litigation
-reduces audit time and costs
-improves corporate governance
Contents of overall audit strategy & audit plan

This will be updated and changed as necessary during the

course of the audit
The overall audit strategy sets the scope, timing and direction
of the audit, and guides the development of an audit plan
Matters to consider
Characteristics of the engagement
-financial reporting framework
-industry specific reporting requirements
Cont’d
-expected audit coverage
-nature of business segments
-effects of IT on audits
Reporting objectives, timing of the audit and nature of the
communications
-entity timetable for reporting
-organization of meetings with management and those
charged with governance
Cont’d
-expected communication with third parties
Significant factors, preliminary engagement activities, and
knowledge gained on other engagements
-determination of materiality
-areas with higher risk of material misstatement
-results of previous audits
-need to maintain professional sceptiscism
-significant changes in financial reporting framework
Cont’d
Nature, timing and extent of resources
-selection of engagement team
-assignment of work to team members
-engagement budget
The audit plan
This converts the audit strategy into a more detailed plan and
includes the nature, timing and extent of audit procedures to
be performed by the engagement team in order to obtain
sufficient, appropriate audit evidence to reduce audit risk to
an acceptably low level
Cont’d
Audit plan includes:
-description of nature, timing and extent of planned risk
assessment procedures
-a description of the nature, timing and extent of planned
further audit procedures at the assertion level
-other planned audit procedures required to be carried out for
the engagement to comply with ISAs
Cont’d
Some items in audit plan
-timetable of planned audit work
-allocation of work to audit team
-audit procedures for major account item
-materiality