ISA-300 (Planning An Audit Of Financial Statements)

Audit Planning:

Planning of an audit involves establishing the overall strategy for management and developing an audit
plain, in order to reduce the audit risk to an acceptably low level. Planning enables an auditor to conduct
an effective, efficient and timely audit.

Planning Involves:

 Establish an overall audit strategy by the engagement partner and other key members of the
engagement team.

 Developing an overall audit plan, its scope and conduct.

 Developing audit programs showing nature, timing and extent of audit tests.

Advantages of Audit Planning:

 Ensures attention to key areas.

 Identification of potential problems (that indicates frauds).

 Expedite finalization and efficient utilization of audit staff.

 Facilitate work coordination between other auditors of components and experts.

Extent of Planning:

Extent of planning varies with the size of entity, complexity of audit, previous experience and knowledge,
change in circumstances that occur during the audit engagement.

Preliminary Engagement Activities:

Auditor should perform the following activities at the beginning of the current audit engagement.

 Perform procedures regarding the continuance of the client relationship and the specific audit
engagement.

 Evaluate the compliance with ethical requirements, including independence.

 Establish an understanding of the terms of the engagement.

The purpose of performing these preliminary engagement activities is to help ensure that the auditor has
considered any events that may adversely affect the auditor’s liability to plan and perform the audit
engagement to reduce the audit risk to an acceptably low level.
Overall Audit strategy:

The overall audit strategy sets the audit scope, timing and direction of the audit and guides the
development of more detailed audit plan.

 Determining the characteristics of the engagement that define its scope such as: the financial
reporting frame work used, Industry-specific reporting requirements, the locations of components
of the entity.

 Ascertaining the reporting objectives of the engagement to plan the timing of the audit and nature
of communication required such as: deadlines of interim and final reporting and key dates for
expected communication with management and those charged with governance.

 Considering the important factors that will determine the focus of the engagement team’s effort’s
such as: determination of appropriate materiality levels, preliminary identification of areas where
there may be higher risk of material misstatement, preliminary identification of material
components and account balances, identification of recent significant entity-specific, industry,
financial reporting or other relevant developments.

Matters To Be Considered In The Development Of An Overall Audit Plan Include:

 Knowledge of general economic factors and industry conditions affecting the entity’s business.

 Knowledge of important characteristics of the entity, nature of business, financial performance.

 Knowledge of general level of competence of the management.

 The expected assessment of inherent and control risk and the identification of significant audit
areas.

 The identification of complex accounting areas including those involving accounting estimates.

 Terms of engagement and statutory responsibilities, nature and timing of report.

 Client’s accounting policies, effect of IASs and ISAs, identification of key audit areas.

 Determination of materiality levels, possibility of material error or fraud.

 Degree of reliance on accounting systems and internal control.

 Emphasis on specific audit area.

 Nature and extent of audit evidence to be obtained.

 Reliance on internal auditor’s report.

 Involvement of other auditors, involved in the audit of the subsidiaries, branches and divisions.
 Involvement of experts.