What are the matters to be considered in establishing the overall audit strategy?
The following auditing standard is not the current version and does not reflect any amendments effective on or after December 31, 2016. The current version of the auditing standards can be found here. Show
Audit PlanningEffective Date: For audits of fiscal years beginning on or after Dec. 15, 2010Final Rule: PCAOB Release No. 2010-004Summary Table of Contents
Introduction1. This standard establishes requirements regarding planning an audit. Objective2. The objective of the auditor is to plan the auditso that the audit is conducted effectively. Responsibility of the Engagement Partner for Planning3. The engagement partner1/ is responsible for the engagement and its performance. Accordingly, the engagement partner is responsible for planning the audit and may seek assistance from appropriate engagement team members in fulfilling this responsibility. Engagement team members who assist the engagement partner with audit planning also should comply with the relevant requirements in this standard. Planning an Audit4. The auditor should properly plan the audit. This standard describes the auditor's responsibilities for properly planning the audit.2/ 5. Planning the audit includes establishing the overall audit strategy for the engagement and developing an audit plan, which includes, in particular, planned risk assessment procedures and planned responses to the risks of material misstatement. Planning is not a discrete phase of an audit but, rather, a continual and iterative process that might begin shortly after (or in connection with) the completion of the previous audit and continues until the completion of the current audit. Preliminary Engagement Activities6. The auditor should perform the following activities at the beginning of the audit:
Planning Activities7. The nature and extent of planning activities that are necessary depend on the size and complexity of the company, the auditor's previous experience with the company, and changes in circumstances that occur during the audit. When developing the audit strategy and audit plan, as discussed in paragraphs 8-10, the auditor should evaluate whether the following matters are important to the company's financial statements and internal control over financial reporting and, if so, how they will affect the auditor's procedures:
Audit Strategy8. The auditor should establish an overall audit strategy that sets the scope, timing, and direction of the audit and guides the development of the audit plan. 9. In establishing the overall audit strategy, the auditor should take into account:
Audit Plan10. The auditor should develop and document an audit plan that includes a description of:
Multi-location Engagements11. In an audit of the financial statements of a company with operations in multiple locations or business units,13/ the auditor should determine the extent to which audit procedures should be performed at selected locations or business units to obtain sufficient appropriate evidence to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. This includes determining the locations or business units at which to perform audit procedures, as well as the nature, timing, and extent of the procedures to be performed at those individual locations or business units. The auditor should assess the risks of material misstatement to the consolidated financial statements associated with the location or business unit and correlate the amount of audit attention devoted to the location or business unit with the degree of risk of material misstatement associated with that location or business unit. 12. Factors that are relevant to the assessment of the risks of material misstatement associated with a particular location or business unit and the determination of the necessary audit procedures include: [The following subparagraph a. is effective for audits of fiscal years beginning on or after December 15, 2014. See PCAOB Release No. 2014-002. For audits of fiscal years beginning before December 15, 2014, click here.]
13. In determining the locations or business units at which to perform audit procedures, the auditor may take into account relevant activities performed by internal audit, as described in AU sec. 322, The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements, or others, as described in Auditing Standard No. 5. AU sec. 322 and Auditing Standard No. 5 establish requirements regarding using the work of internal audit and others, respectively. 14. AU sec. 543, Part of Audit Performed by Other Independent Auditors, describes the auditor's responsibilities regarding using the work and reports of other independent auditors who audit the financial statements of one or more of the locations or business units that are included in the consolidated financial statements.18/ In those situations, the auditor should perform the procedures in paragraphs 11-13 of this standard to determine the locations or business units at which audit procedures should be performed. Changes During the Course of the Audit15. The auditor should modify the overall audit strategy and the audit plan as necessary if circumstances change significantly during the course of the audit, including changes due to a revised assessment of the risks of material misstatement or the discovery of a previously unidentified risk of material misstatement. Persons with Specialized Skill or Knowledge16. The auditor should determine whether specialized skill or knowledge is needed to perform appropriate risk assessments, plan or perform audit procedures, or evaluate audit results. 17. If a person with specialized skill or knowledge employed or engaged by the auditor participates in the audit, the auditor should have sufficient knowledge of the subject matter to be addressed by such a person to enable the auditor to:
Additional Considerations in Initial Audits18. The auditor should undertake the following activities before starting an initial audit:
19. The purpose and objective of planning the audit are the same for an initial audit or a recurring audit engagement. However, for an initial audit, the auditor should determine the additional planning activities necessary to establish an appropriate audit strategy and audit plan, including determining the audit procedures necessary to obtain sufficient appropriate audit evidence regarding the opening balances.19/ What is an overall audit strategy?The auditor should establish an overall audit strategy that sets the scope, timing, and direction of the audit and guides the development of the audit plan. In establishing the overall audit strategy, the auditor should take into account: a. The reporting objectives of the audit engagementand the nature of the communications, b.
What are the key decisions in an Audit Strategy?records the key decisions considered necessary to properly plan the audit and to communicate significant matters to the engagement team. For example, the auditor may summarise the overall audit strategy in the form of a memorandum that contains key decisions regarding the overall scope, timing and conduct of the audit.
What should the Auditor document during the engagement with the Auditor? Ascertain the nature, timing and extent of resources necessary to perform the engagement. The auditor should document the overall audit strategy, including any significant changes thereto. The documentation of the overall audit strategy
When do auditors need to change their Audit Strategy?Auditors may need to change an overall audit strategy during the course of the audit if they obtain any findings that require them to revise the audit plan. The main purpose of the audit strategy is to minimize the audit risks and to perform the audit in an efficient and effective manner.
What are the matters to be considered by the auditor in developing the overall audit plan?. 10 The auditor should develop and document an audit plan that includes a description of: The planned nature, timing, and extent of the risk assessment procedures; The planned nature, timing, and extent of tests of controls and substantive procedures;12 and.
What factors should be considered while preparing an audit plan?What does an audit plan include?. Extent of audit plan's risk assessment procedures.. The nature of all procedures involved in the plan.. The timeframe for which the plan completes.. Nature of tests of controls.. Nature of substantive procedures.. Time frame for test of controls.. Time frame for substantive procedures.. Which of the following is relevant in establishing the overall audit strategy in every audit engagement?b. Planning an audit involves establishing the overall audit strategy for the engagement and developing the audit plan, in order to reduce audit risk to an acceptably low level.
What is the importance of the overall audit strategy discuss the factors to be considered by the auditor in establishing the overall audit strategy?Overall audit strategy sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan. The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan.
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