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Could someone please help me differentiate between the two.
For instance, in the June 2009 question 1 part a) it asks about the sections in an audit strategy document. I thought strategy meant the scope, timing and direction of audit, which would therefore include stuff like the relevant financial reporting or legal framework, the no. of locations to be tested, whether we are going to rely on internal or external parties, the timing of communication with mgt and those charged with governance, preliminary materiality levels set for planning purposes, selection of the engagement teams, etc etc
but in the answer it says understanding the entity’s environment, understanding the accounting and internal control systems, risk and materiality, the nature, timing and extent of audit procedures (which should be in the audit plan right?!?!) and co-ordination, supervision and review of audit work.
Could someone please explain to me why this is the answer?and then in the December 2009 paper, question 1 part a, they ask what the audit plan will include, which the answer states as:
(1) a description of the nature, timing and extent of planned risk assessment procedures sufficient to assess the risks of material misstatement (but shouldn’t risk assessment be made before even the audit strategy was created – first assess risk then go on to the audit strategy and plan right?)(2) a description of the nature, timing and extent of planned further audit procedures at the assertion level for each material class of transactions, account balance and disclosure. (why is it further audit procedures? isn;t the audit plan by definition a more detailed version of the audit strategy which includes the nature, timing and extent of audit procedures to be performed in order to reduce audit risk to a acceptably low level??)
Please help me with this! I have been going crazy trying to understand this area for the last month!!!!
Thanks
Hi Liz.
I discussed this with the tutor not long ago, and here’s how our conversation went.
SI80: What’s the difference between an audit plan and audit strategy?
TUTOR: I always think of an audit strategy as one that more or less relies on controls or full substantive procedures. A plan is more detailed. Strategy always comes before plan.
SI80: A strategy, then, is like understanding the entity and its environment, the ICS (Internal Control Systems) and risk and materiality?
TUTOR: Yes. If your strategy is not to do any tests of control, then the detailed plan will take that into account.
SI80: Audit strategy focuses on tests of controls and substantive procedures, whereas Audit plan sets parameters to obtain evidence to reduce audit risks to an acceptably low level. Is that a good way of differentiating the two?
TUTOR: Not really. First you have to decide how you are going to tackle the audit. That’s the big picture. It could be that you decide there are no good internal controls. Your strategy would then be to not do any TOCs and concentrate on substantive procedures. Having decided that then you have to plan how you will use substantive procedures to get sufficient appropriate audit evidence.
_______________________________________________________________What he’s saying, in short, is that an AUDIT STRATEGY is about implementing a strategy for tackling the audit, and the AUDIT PLAN is about how you will use this strategy to tackle the audit.
Hope this helps.
Si80
Try this …
Purpose: Arrive London (liken to Obtaining audit evidence and forming opinion).
STRATEGY = Use plane/boat/car? What hour’s? etc …. You decide on e.g Plane leaving @ 10 (and which is subject to this and that setback/risk which you must deal with, such as possible missing out if confirmation is not done on time).
PLAN = Confirm reservation a day before (call the agency), get up at 6, catch the bus at 8 etc.
You can see that the strategy is somewhat “general” while the plan is “detailed” and specific.
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Hi Guys
Strategy means the guidelines or action plan ,
but other hand plan is just details of thing .
Plan can be in long term , short term , medium.
but strategy are action plan , guidelines how we will achieve our plan.Regards
Strategy is What you are going to do. Substantive or analytical or both.
Plan is How you are going to do it.
Does audit planning and strategy comes before risk assessment ,
Or is it audit strategy ,risk assessment then audit plan?
I’m using the bpp media textbook and there is nothing about audit strategy document in it so I’m kinda confused because I saw it as a past paper question ?
For some reason I’m having problem with this area Audit planning and strategy .Plan is what you will do
Strategy is how you will doIn planning audit you will first Understand Entity
Then find out Risk
Then think about its materiality
According to materiality level you prepare the Audit Strategy
(by thinking how much test of controls and substantive and analytical procedure will be done.)
and then other factors(like timing of audit, other factors consider etc.)
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