Audit StrAtegy , Audit

PlAnning And Audit

ProgrAmme
PREPARED BY : CA RAJNEESH JAIN
 1.Audit PlAnning
• Planning an audit involves:
(a) Establishing the overall audit strategy
(b) Developing an audit plan
• Auditor should plan his work to enable
Him to conduct an effective audit in effective & timely
manner.
• Plan should be prepared to cover the following :
a) For acquiring knowledge of client’s accounting systems,
policies and Internal control procedures.
b) Establishing the expected degree of reliance to be
placed on internal control
c ) Determining and Programming the nature , timing and extent of the
audit procedures to be performed
d) Coordinating the work to be Performed

• Plans should be further developed and revised as necessary

during the course
of audit.

• Benefits of Planning in the audit of FS :

1.Helping the auditor to devote appropriate attention to important areas
of the audit.
2.Helping the auditor to identify and resolve Potential Problems on a
timely basis.
3.Helping the auditor to properly organize & manage the audit
engagement so that it s performed in an effective & efficient manner.
4.Assisting in the selection of engagement team with appropriate levels
of capabilities to respond to anticipated risks & proper assignment of
work to them
2. Audit StrAtegy
1.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.
• The process of establishing the overall audit strategy assists the auditor to
determine :
1. The resources to deploy for specific audit areas like the use of
appropriately experienced team members for high risks areas etc.
2. The amount of resources to allocate to specific audit areas , such as , the
number of team members assigned to observe the inventory count at
material locations etc.
3. When these resources are to be deployed like whether at an interim audit
stage or at key cut-off dates
4. How such resources are managed , directed and supervised like when team
briefing meetings are expected to be held etc.
 2.Establishing of overall Audit Strategy

In establishing the overall audit strategy , the auditor shall :

a. Identify the characteristics of the management that defines its scope

b. Ascertain the reporting objectives of the engagement to plan the timing of

the audit and the nature of the communication required

c. Consider the factors that are significant in directing the engagement team’s
efforts

d. Consider the results of preliminary engagement activities .

e. Ascertain the nature , timing and extent of resource

necessary to perform the engagement.
3.relAtionShiP between overAll Audit

StrAtegy & Audit PlAn

o Once the overall audit strategy has been established , an audit

plan can be developed to address the various matters identified
in the overall audit strategy , taking into account the need to
achieve the audit objective through the efficient use to the
auditor’s resources.

o The establishment of the overall audit strategy and the detailed

audit plan are not necessarily discrete or sequential processes ,
but are closely inter-related since changes in one may result in
consequential changes to the other.
 4.develoPment oF
Audit PlAn

Development of audit plan :

1.Description of Audit Plan 2.Knowledge of the client’s Business

 develoPment oF Audit PlAn
2.Knowledge of the client’s
1.Description of Audit Plan Business
• The audit plan is more detailed • Auditor shall obtain an understanding
than the overall audit strategy of the following :
that includes the nature , timing 1. Relevant industry, regulatory & other
and extent of audit procedures external factors including the
applicable Financial reporting
to be performed by framework.
engagement team members. 2. The Nature of entity
3. The entity’s selection and
• Planning for these audit application of accounting policies ,
including the reasons for changes
procedures takes place over thereto.
the course of the audit as the 4. The entity’s objective and strategies
audit plan for the engagement and those related business risk that
develops. may result in risks of material
misstatement.
5. The measurement and review of the
entity’s financial performance.
 5.Audit PlAnning – A
ContinuouS ProCeSS
• Planning is continual process that often begins shortly after the completion
of the previous audit and continues until the completion of the current audit
engagement.

• Planning includes the need to consider following matters :

1. The analytical procedures to be applied as risk assessment procedure.
2. The determination of materiality.
3. The involvement of experts.
4. The Performance of other risk assessment procedures.
5. Obtaining a general understanding of the legal and regulatory framework
applicable to the entity and how the entity is complying with that
framework.
 6. ChAngeS to PlAnning deCiSionS during

the CourSe oF the Audit

• The auditor shall update and change the overall audit strategy and
audit plan as necessary during the course of the audit.

• As a result of unexpected events , changes in conditions or audit

evidence obtained from the results of audit procedures , 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.
 7.direCtion, SuPerviSion And
review

-The auditor shall plan the nature , timing and extent of direction
and supervision of engagement team members and review of
their work.
-The nature, timing and extent of the direction and supervision of
engagement team members and review of their work vary
depending on many factors including :

1.The size and complexity of the entity.

2.The area of the audit.
3.The assessed risks of material misstatement.
4.The capabilities and competence of the individual team members
performing the audit work.
 8.Documentation
- The Auditor Shall Documents :
1.the overall audit strategy
2. the audit plan
3. any significant changes made during the audit engagement to the
overall engagement to the overall audit strategy or the audit plan , and the
reasons for such changes.

- The Documentation of overall audit strategy is a record of the key

decisions considered necessary to properly plan the audit and to
communicate significant matters to the engagement team.
 9.Audit ProgrAmme
Audit Programme consists of a series of verification procedures to be
applied to the financial statements and accounts of a given company for
the purpose of obtaining sufficient evidence to enable the auditor to
express an informed opinion on such statements.

• In other words , an audit programme is detailed plan of

applying the audit procedures in the given circumstances
with instructions for the appropriate techniques to be
adopted for accomplishing the audit objectives.
• evolving one Audit ProgrAmme – not PrACtiCAble For All
buSineSSeS

 Businesses vary in nature , size ,and composition therefore work

which is suitable to one business may not be suitable to other.
 On account of such variations , evolving one audit programme
applicable to all business under all circumstances is not practicable.
 10.develoPment oF Audit
PlAn&ProgrAmme
• While developing an audit plan Auditor shall consider
following points :
1.Written Audit Programme - The auditor should prepare a
written audit programme setting forth the procedures that
are needed to implement the audit plan.
2.Audit Objective and Instruction to Assistants – The
Programme may also contain audit objectives for each area
& should have sufficient details to serve as a set of
instructions to the assistants involved in audit.
3.Reliance on Internal Controls – While preparing Audit
Programme, Auditor may wish to rely on certain internal
control in determining NTE of required Audit Procedures.
develoPment oF Audit PlAn
& ProgrAmme
4.Timings of Performance of Audit Procedures – Auditor
normally has flexibility in deciding when to perform Audit
Procedures . However, in some cases, the auditor may
have no discretion as to timing foe example , Stock Audit.
5.Audit Planning – Audit planning commences at the
conclusion of the previous year’s audit along with related
programme. Such consideration is based on the auditor’s
review of the internal control , his preliminary evaluation
thereof and the results of his compliance.
 11.QuAlity Control For Audit work-
delegAtion & SuPerviSion oF Audit work

-A lot of work is delegated by auditor to his assistants. The Auditor

should carefully direct , supervise and review work delegated to
assistants. Auditor should obtain reasonable assurance that work
performed by other auditors or experts is adequate for his purpose.

- An audit is a complex task involving number of people at

different levels.
The objective of the auditor is to implement quality control
procedures at the engagement level that provides the auditor
with reasonable assurance that :

(a) The audit complies with

professional standards and
regulatory and legal
requirement;
and

(b) The auditor’s report issued is

appropriate in the circumstances
 12.mAteriAlity & Audit
PlAnning
• Materiality is an important consideration for an auditor to
evaluate whether the FSs reflect a true & fair view or not.
• Auditor has to apply his professional judgement in determining
materiality , choosing appropriate benchmark & determining
level of benchmark .
• Any misstatement is considered to be material if they,
individually or in aggregate could reasonably be expected to
influence the economic decisions of users taken on basis of
the FSs.
• Materiality of an item may be judged by considering the
impact on the P&L or in the BS or in total of the category of
expenditure or income to which it pertains and on its
comparison with the corresponding figure of Previous Year.
12.1 determining mAteriAlity when PlAnning
the Audit :
• Determining Materiality involves the exercise of Professional
Judgement.
• While establishing overall audit strategy , auditor shall determine
materiality for the FSs as whole.
• A percentage is often applied to a chosen Benchmark as a starting
point in determining materiality for the FSs.
• Factors that may affect identification of an appropriate Benchmark
include the following :
1.Elements of the FSs eg. Assets , Equity etc
2.Whether there are items on which the attention of the users of the
particular entity’s FSs tends to be focused.
3.The nature of entity , where the entity is at in its life cycle , and the
industry & economic environment in which the entity operates ; The
entity’s ownership structure & the way it is financed
12.2 PerFormAnCe mAteriAlity

-Performance Materiality means the

amount or amounts set by the auditors
at less than materiality for the FSs as a
whole to reduce to an appropriately
low level the probability that the
aggregate of uncorrected & undetected
misstatements exceeds materiality for
the FSs as a whole.
- If applicable , performance materiality
also refers to the amount and amounts
set by the auditors at less than the
materiality level or levels for particular
classes of transactions . Account
balances or disclosures.
 12.3 reviSion in mAteriAlity
level
• Materiality for FSs as a whole may need to be revised as
a result of a change in circumstances that occurred
during the audit .
• Eg. If during the audit it appears as though actual
financial results are likely to be substantially different
from the anticipated period end financial results that
were used initially to determine materiality for the FSs as
a whole , the auditor revises that materiality.
 12.4 Documenting Materiality
• The Audit documentation shall include the following
amounts and the factors considered in their
determination :
a) Materiality for the FSs as a whole.
b) If applicable , the materiality level or levels for particular
classes of transactions , account balances or
disclosures.
c) Performance Materiality
d) Any Revision of a)-c) as the audit progressed