Relevant to ACCA Qualification Paper P7 Show
Candidates will benefit from understanding the wider aspects of audit planning, and so this article summarises the main requirements and guidance contained in ISA 300, Planning an Audit of Financial Statements. When does audit planning take place? Similarly, the audit plan may be revised as the audit progresses, and should not be viewed as being fixed in place once the main planning phase has ended. For example, a significant event may take place as the audit is in progress, meaning that the audit plan needs to be changed. The nature and extent of planning activities depends on the size and complexity of the audit client, previous experience of the audit firm with the client, and any changes in circumstance that may occur during the audit. Preliminary activities
These requirements are also contained in and ISA 220, Quality Control for an Audit of Financial Statements and ISA 210, Agreeing the Terms of Audit Engagements and remind us that planning is a wider activity than just obtaining understanding of the business and performing risk assessment. Audit strategy and audit plan
Audit strategy Identify the characteristics o f the engagement that define its scope Ascertain the reporting objectives of the engagement to plan the timing of the
audit and the nature of the communications required Consider the factors that are significant in directing the audit team’s efforts in the auditor’s professional judgment Consider the results of preliminary engagement activities and knowledge gained on other engagements Ascertain the nature, timing and extent of resources necessary to perform the engagement Audit plan Therefore it is not necessarily the case that the audit strategy is prepared and completed before the audit plan is devised, and in practice it is typical for the two to be developed together. The audit plan is a detailed programme giving instructions as to how each area of the audit will be conducted. In other words, the audit plan details the specific procedures to be carried out to implement the strategy and complete the audit. ISA 300 provides guidance on what should be included in the audit plan, stating that the audit plan should describe:
Typically an audit plan will include sections dealing with business understanding, risk assessment procedures, planned audit procedures ie the responses to the risks identified and other mandatory audit procedures. Changes to the audit strategy and audit plan This may be the case when information comes to the auditor’s attention that differs significantly from the information available when the auditor planned the audit procedures, for example, an event may take place after audit planning has been initially completed which creates doubt over going concern. Or, as a result of performing planned audit procedures additional information may come to light which may lead the auditor to amend initial risk assessment, or level of performance materiality, for all, or part, of the audit. Documentation Documentation is crucial, because key decisions about how the audit will be performed are contained in the audit strategy and audit plan. The documentation should therefore include the response made by the auditor to any significant changes that occur during the audit, as discussed above. The audit strategy and audit plan do not need to be documented in a particular way. Some audit firms use memoranda, others checklists. Some use standardised documentation such as standardised audit programmes while others tailor the specific form of the documentation to each audit engagement. The form of the documentation does not matter as long as it provides a clear record of how the audit was planned. Direction, supervision and review It is crucial that the audit plan includes the detail as to how supervision and review should be conducted during the audit, in order to perform a high quality audit. Inadequate supervision and review can lead to the audit team making errors, for example, selecting inappropriate items for sampling, or failing to properly conclude on audit procedures performed. The amount of detail included in the audit plan in relation to supervision and review will depend on factors such as the size and complexity of the entity being audited, the assessed risk of material misstatement, and the capabilities and competence of the audit team members. Additional considerations in initial audit engagements Conclusion Written by a member of the Paper P7 examining team Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement?Which of the following procedures is the auditor most likely to perform after accepting an initial audit engagement? Tour the client's facilities.
Which activities need to be done before the audit starts?Steps to ensure a successful audit include:. Planning for the audit. Planning is crucial, and additional time needs to be taken to adequately prepare for an audit. ... . Keeping up with accounting standards. ... . Assess organizational changes. ... . Learn from the past. ... . Develop a timeline and assign responsibilities. ... . Organize data.. Which of the following is the most likely first step an auditor would perform at the beginning of an initial audit engagement?Which of the following is the most likely first step the auditors would perform at the beginning of an initial audit engagement? Prepare a rough draft of the financial statements and of the auditors' report.
What is the basic preparation that an auditor is supposed to do before audit?He should study the complete accounting system of the client, the scope and effectiveness of internal control system and the list of books maintained by the client. To understand the nature of transaction, knowledge of technical aspects of business is must.
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