Thursday, February 3, 2022

How to make a plan for conducting an audit engagement (ISA-300)

 Establishing the overall audit strategy for the engagement and producing an audit plan are both part of the planning process for an audit. The type and scope of preparatory activities will vary depending on the entity's size and complexity, the past experience of key engagement team members with the entity, and changes in circumstances that occur throughout the audit engagement. Planning is not a distinct phase of an audit; rather, it is a continuous and iterative process that often begins soon after (or in conjunction with) the completion of the prior audit and continues until the current audit engagement is completed.

The audit approach and plan

According to ISA 300, audit planning activities should include:

§  establishing the overall audit strategy for the engagement; and

§  developing an audit plan.

Audit Strategy

The audit strategy lays out in broad terms how the audit will be done, as well as the audit's scope, timing, and direction. After that, the audit strategy directs the creation of the audit plan, which includes the comprehensive responses to the auditor's risk assessment.

Audit Plan

The audit plan is more specific than the overall audit strategy since it specifies the nature, time, and scope of audit procedures that engagement team members will undertake. Prior to the auditor's identification and assessment of the risks of material misstatement, planning includes such matters as:

§  The analytical procedures to be used as risk assessment procedures must be considered.

§  Getting a general grasp of the legal and regulatory framework that applies to the entity, as well as how that framework is being followed.

§  The process of determining materiality.

§  The participation of experts.

§  Performing of other risk assessment techniques.

Benefits of Audit Planning

The audit of financial statements benefits from adequate planning in various ways, including the following:

§  assisting the auditor in devoting adequate attention to critical areas of the audit

§  assisting the auditor in identifying and resolving potential issues in a timely manner.

§  assisting the auditor in appropriately organizing and managing the audit engagement in order for it to be completed in a timely and effective manner.

§  assisting in the selection of engagement team members with the necessary talents and expertise to respond to predicted risks, as well as the suitable assignment of tasks to them.

§  facilitating the direction, supervision, and evaluation of engagement team members' work.

§  assisting, if appropriate, in the coordination of work done by component auditors and experts.

Practice:

At the start of every audit engagement, the auditor must include the following in the audit documentation: (a) the overall audit strategy; (b) the audit plan; and (c) any major changes to the overall audit strategy or the audit plan made during the audit engagement, as well as the reasons for such changes.

 

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