(a) Audit planning is addressed by ISA 300 (Redrafted) Planning an Audit of Financial Statements. The standard notes that an audit plan will be developed after the overall audit strategy has been established and then states that adequate planning benefits the audit of financial statements in several ways, including the following:
– Helping the auditor to devote appropriate attention to important areas of the audit.
– Helping the auditor identify and resolve potential problems on a timely basis.
– Helping the auditor properly organise and manage the audit engagement so that it is performed in an effective and efficient manner.
– Assisting in the selection of engagement team members with appropriate levels of capabilities and competence to respond to anticipated risks and the proper assignment of work to them.
– Facilitating the direction and supervision of engagement team members and the review of their work.
– Assisting, where applicable, in coordination of work done by experts.
The following are examples of matters that would be included in the audit plan:
(i) A description of the nature, timing and extent of planned risk assessment procedures sufficient to assess the risks of material misstatement.
(ii) This would include assessment of inherent risk and control risk at both the entity and assertion level. An important element of the plan would be the understanding and assessment of the control environment of the organisation.
(iii) A description of the nature, timing and extent of planned further procedures at the assertion level for each material class of transactions, account balance, and disclosure.
(iv) This would include an explanation of the decision
– whether to test the operating effectiveness of controls (an important decision is whether reliance is to be placed on controls).
– on the nature, timing and extent of planned substantive procedures (this would depend on the decision as to the level of control risk).
(v) Audit procedures required to be carried out for the engagement in order to comply with ISAs, for example, the use of external confirmations to obtain sufficient appropriate evidence at the assertion level.
(Tutorial note: Marks would also be available for additional points such as:
– Materiality
– Timetable of detailed audit work
– Allocation of work to team members.)
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