- This topic has 1 reply, 2 voices, and was last updated 9 years ago by olukemif.
November 30, 2012 at 12:01 pm #55965kay12
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ISA 300 planning should not be seen as discrete and seperate part of overall
audit. The nature and extend of planning depends on the size and complexity of
client, prev. experience of firm and any changes in circumstance occuring
during audit. Audit plan revised as audit progressed and should not be fixed.
ISA 300 req.
• Performing procedures regarding the continuance of the client relationship
and the specific audit engagement.
• Evaluating compliance with relevant ethical requirements, including
• Establishing an understanding of the terms of the engagement.
These are also included in ISA 220 and ISA 210, hence clearifying the fact
planning is wider than just obtaining business understanding and risk
ISA 300 states that audit planning activities includes:
• establish the overall audit strategy for the engagement
• develop an audit plan.
It is the setting of scope, timing and direction of an audit (i.e., how audit
is to be conducted). ISA 300 requires to consider specfic matters when
establishing strategy. These are:
• Identify the characteristics of the engagement that define its scope (i.e.,
group audit vs owner-managed company leading to considerations of matters such
as financial reporting framework, relaince on component/internal auditors,
availability of data etc)
• Ascertain the reporting objectives of the engagement to plan the timing of
the audit and the nature of the communications required
of additional reporting and communication requirements to comply with
corporate governance and industry regulations)
• Consider the factors that are significant in directing the audit team’s
efforts in the auditor’s professional judgment
(i.e., consider issues to do
with quality control, such as how resources are managed, directed and
• Consider the results of preliminary engagement activities and knowledge
gained on other engagements (i.e., initial assessments of materiality, risks
identified from preliminary activities such as fraud risks etc and reviews of
business plans or cash flow forecasts)
• Ascertain the nature, timing and extent of resources necessary to perform
(i.e., considerating on the need for specialist in an audit,
the deadline, if tight than more staff needed, the risk, if high more
ISA 300 provides guidance on what should be included in the audit plan:
• the nature, timing and extent of planned risk assessment procedures
• the nature, timing and extent of planned further audit procedures at the
• other planned audit procedures that are required to be carried out so that
the engagement complies with ISAs.
Changes to the audit strategy and audit plan
Any unexpected events, or changes in conditions, the auditor may need to
modify the overall audit strategy and audit plan and thereby the resulting
planned nature, timing and extent of further audit
procedures, based on the
revised consideration of assessed risks.
ISA 300 requires that as well as the audit strategy and audit plan being
thoroughly documented, a record of significant changes made to the audit
strategy and audit plan is needed.
Direction, supervision and review
ISA 300 requires that the auditor shall plan the nature, timing and extent of
direction and supervision of engagement team members and the review of their
Additional considerations in initial audit engagements
The final section of ISA 300 relates to initial audit engagements, and
requires the auditor to perform client and engagement acceptance procedures
(as also required by ISA 220), and also to communicate with the predecessor
auditor, where there has been a change of auditors, in compliance with
relevant ethical requirements.
The ISA recognises that for an initial audit
engagement, the auditor may need to expand the planning activities because the
auditor does not ordinarily have the previous experience with the entity that
is considered when planning recurring engagements.December 1, 2012 at 10:31 am #109278olukemif
- Topics: 0
- Replies: 4
My take on the article….
Understand the client’s entity and its environment by having good knowledge of
(1) Internal control systems- The better the internal control systems the less work to be done by auditor. This must be tested though to confirm reliance (use STRIP)
(2) External Factor: Understanding of external factors such as its competition and laws in the industry will help know about any risky aspect of business that can cause material misstatement on the financial statement, probably due to the nature of the business or due to the industry environment.
(3) Company Structure and Accounting policy: complexity of the company structure and need to know if following relevant financial reporting standards in preparing their FS.
(4) Performance measurement: If mgt bonus is based on eg PBT or revenue then there is bias and likely that IS is misstated.
(5) Company Strategy and business plan and known risks.
To understand this, we can use AEIOU. Its F8 level but it still helps me when i cant think of anything else
We need to ensure that we can either remove or reduce to acceptable level any risks identified otherwise we cant take the engagement..
That will lead to audit strategy…the audit strategy helps us to choose which approach to use for the audit and allocating resources.
Scope of audit– the amount of work to be done (no of branches, location etc)
Timing– Start and end of audit work
Direction of audit– materiality and risk identified from understanding client procedure
Nature– if its statutory audit or review engagement
Purpose of d engagement– here we must know what the engagement is for and review our independence or any other ethical issues that may be present.
Once we have determined that, we then plan the audit engagement based on outlined strategy
The extent of audit plan must be revised regularly and changed if there is any reason to e.g change in the accounting standards that may mean more work or time should be given to engagement..
We must however be sure when identifying risks that we talk about relevant risks. Financial risks- risks that financial statements are materially misstated due to wrong accounting policy, disclosure etc.
Business risk – risk that business will not meet its objectives eg lose money or reputation. This could be due to compliance (fines- affect profit as its expense), environmental hazard issue ( reputation, cud cause loss of customers..reduced revenue) etc.
Business risks identified are however a pointer to material misstatement in the financial statement.
Pls anyone with other information on this and other topics pls post. And anywhere ive made mistake pls point out so i can correct before exam
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