AUDIT PLANNING

PSA 300
SCOPE OF PSA 300

deals with the auditors responsibility to plan an audit of financial statements

EFFECTIVITY OF PSA 300

December 15, 2009

OBJECTIVE

The objective of the auditor isto plan the audit so that it will be performed in an

effective manner.
Phases related to Audit Planning
Audit Planning

involves:

1. Establishing theoverall audit strategyfor the engagement

2. Developing anaudit plan

Adequate planning benefits
1. helps auditor devoteappropriate attention to important areasof the audit
2. helpsauditoridentify and resolve potential problemson a timely basis
3. helps auditorproperly organize and manage the audit engagementso that
it is performed in aneffective and efficientmanner
4. assists in theselection of engagement team members(appropriate levels
of capabilities and competence), and theproper assignment of workto
them
5. facilitates thedirection and supervision of engagement team
membersand thereview of their work.
6. assists, where applicable, incoordination of work donebyauditors of
components and experts.
Nature and extent of planning

Vary according to the following:

1. Size and complexityof the entity
2. Key engagement team membersprevious experience with the entity
3. Changes in circumstancesthat occur during the audit engagement
Audit Planning

NOT a discrete phaseof an audit,

but rather, acontinual and iterative process

that oftenbegins shortly after(or in connection with) thecompletion of the previous

audit

and continuesuntil the completion of the current auditengagement

Audit Planning
Includes consideration of thetiming of certain activities and audit
proceduresthat need to becompleted prior to the performance of
further audit procedures, such as:
1. The analytical procedures to be applied asrisk assessment
procedures(RAPs).
2. Obtaining ageneral understandingof thelegal and regulatory
frameworkapplicable to the entity andhow the entity is complyingwith
that framework.
3. The determination ofmateriality.
4. The involvement ofexperts.
5. The performance ofother RAPs.
The Role and Timing of Planning
The auditor may decide to discuss elements of planning with the entitys
management.

When discussing matters included in the overall audit strategy or audit

plan,care is requiredin ordernot to compromise the effectiveness of
the audit.

Discussingthenature and timing of detailed audit procedureswith

managementmay compromisethe effectiveness of the audit by making
the audit procedures too predictable.
REQUIREMENTS

a. Involvement of Key Engagement Team Members

b. Preliminary Engagement Activities

c. Planning Activities

d. Documentation

e. Additional Considerations in Initial Audit Engagements

Involvement of Key Engagement Team Members

Theengagement partner and other key membersof the engagement

team shall beinvolved in planning the audit, including planning and

participating in the discussion among engagement team members.

their experience and insight enhance the effectiveness and efficiency of the

planning process.
Preliminary Engagement Activities
The auditor shall undertake the following activities at thebeginning of the
current audit engagement:
a. Performing procedures required by PSA 220, Quality Control for
Auditsof Historical Financial Information regarding the continuance of
the client relationship and the specific audit engagement;
b. Evaluatingcompliance with ethical requirements, including
independence, as required by PSA 220; and
c. Establishing anunderstanding of the terms of the engagement, as
required by PSA 210, Terms of Audit Engagements.
Preliminary Engagement Activities
assists the auditor inidentifying and evaluating events or circumstancesthatmay
adversely affectthe auditors ability to plan and perform the audit engagement
enables the auditor to plan an audit engagement for which:
a. auditormaintains the necessary independenceandability to performthe
engagement.
b. no issues with management integritythat may affect the auditors willingness
to continue the engagement.
c. no misunderstandingwith the clientas to the termsof the engagement.
Preliminary Engagement Activities
The auditorsconsideration of client continuance and ethical
requirements, including independence,occurs throughout the
auditengagement asconditions and changes in circumstances occur.
Performing these initial procedures are completedprior to the performance of
other significant activitiesfor the current audit engagement.
Forcontinuing audit engagements, such initial procedures oftenoccur shortly
after(or in connection with) thecompletion of the previous audit.
The Overall Audit Strategy
sets thescope, timing and directionof the audit, and

guidesthe development of theaudit plan.

The Audit Plan
More detailedthat includes thenature, timing and extent of audit
procedures to be performedby the engagement team members

Planning for these audit procedurestakes place over the course of the audit
as the audit plan develops

Example:
Planning of the auditorsRAPs occurs earlybut planning for the nature,
timing and extent ofspecific further audit procedures depends on the
outcome of those RAPs
Planning Activities
In establishing theoverall audit strategy, the auditor shall:
1. Identify the characteristics of the engagementthat define itsscope;
2. Ascertain the reporting objectivesof the engagement to plan
thetimingof the audit and thenatureof thecommunications required;
3. Consider the factorsthat, in the auditors professional judgment,
aresignificant in directingthe engagement teams efforts;
4. Consider the results of preliminary engagement activitiesand,
where applicable, whether knowledge gained onother engagements
performedby the engagement partner for the entity isrelevant; and
5. Ascertainthenature, timing and extentofresourcesnecessary to perform
the engagement.
----------------------
Not all are relevant to every auditengagement
and the list is not complete (refer to the material)
Planning Activities
The auditor shall develop anaudit planthat shall include a description of:
1. Thenature, timing and extentofplanned risk assessment procedures,
as determined under PSA 315, Identifying and Assessing the Risks of
Material Misstatement Through Understanding the Entity and Its
Environment.
2. Thenature, timing and extentofplanned further audit proceduresat the
assertion level, as determined under PSA 330, The Auditors Responses
to Assessed Risks.
3. Other planned audit proceduresthat are required to be carried out so
that the engagement complies with PSAs.
Planning Activities
The auditor shallupdate and changetheoverall audit strategy and the

audit planas necessaryduring the course of the audit.

The auditor shall plan thenature, timing and extent of direction and

supervisionof engagement team members and the review of their work.

Planning Activities
establishing theoverall audit strategyassists the auditor to determine subject
to the completion of theauditors risk assessment procedures, such matters
as:
a. resources to deploy for specific audit areas, such as the use of
appropriately experienced team members or the involvement of experts;
b. 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, the extent of review of other auditors work, or the
audit budget in hours to allocate;
c. when these resources are to be deployed; and
d. how such resources are managed, directed and supervised, such
as team briefing and debriefing meetings, engagement partner and
manager reviews and whether to complete engagement quality control
reviews.
Planning Activities
Once the overall audit strategy has been established, anaudit plan can be
developedto address thevarious matters identifiedin theoverall audit
strategy, taking into account the need to achieve the audit objectives
through theefficient use of the auditors resources.
The establishment of theoverall audit strategy and the detailed audit
planarenotnecessarilydiscrete or sequential processes, but areclosely inter-
relatedsince changes in one may result in consequential changes to the
other.
Planning Activities
Inaudits of small entities, the entire audit may be conducted by avery small audit team.

With a smaller team,co-ordination of, and communication between, team

membersareeasier.

Establishing theoverall audit strategyfor the audit of a small entityneed not be a complex or

time-consumingexercise; it varies according to thesize of the entity, thecomplexity of the audit,

and thesize of the engagement team.

Abrief memorandumprepared at thecompletion of the previous audit, based on a review of the

working papers and highlighting issues identified in the audit just completed, updated in the

current period based on discussions with the owner-manager,can serve as the documented

audit strategyfor thecurrent audit engagementif it covers the matters related to preliminary

engagement activities.
Planning Activities
audit planis
more detailedin that it includes thenature, timing and extentofaudit
proceduresto be performed by engagement team members
takes place over the course of the auditas the audit plan for the
engagement develops; examples
a. Planning of the auditor's risk assessment procedures occurs early in the
audit process. However, planning the nature, timing and extent of
specific further audit procedures depends on the outcome of those risk
assessment procedures.
b. The auditor may begin the execution of further audit procedures for
some classes of transactions, account balances and disclosures before
planning all remaining further audit procedures.
Planning Activities
Changes to Planning Decisions During the Course of the Audit
as a result of unexpected events, changes in conditions, or the audit
evidence obtained from the results of audit procedures
need tomodifytheoverall audit strategy and audit planand thereby the
resultingplanned nature, timing and extent of further audit procedures,
based on the revised consideration of assessed risks
For example,audit evidence obtainedthrough the performance ofsubstantive
proceduresmaycontradicttheaudit evidence obtainedthroughtests of controls.
Planning Activities
Thenature, timing and extentof thedirection and supervision of
engagement team membersandreview of their workvary depending on
many factors, including:
a. size and complexityof the entity.
b. area of the audit.
c. assessed risks of material misstatement(for example, an increase in
the assessed risk of material misstatement for a given area of the audit
ordinarily requires a corresponding increase in the extent and timeliness
of direction and supervision of engagement team members, and a more
detailed review of their work).
d. capabilities and competenceof the individual team members
performing the audit work.
Planning Activities
Considerations Specific to Smaller Entities
questions ofdirection and supervisionof engagement team members and
review of their workdo not arise
theengagement partner, having personally conducted all aspects of the
work, will beaware of all material issues
forming an objective viewon the appropriateness of the judgments made in
the course of the audit can present practical problems when the same
individual also performs the entire audit
when particularly complex or unusual issues are involved, it may
bedesirable to consultwithother suitably-experienced auditorsor
theauditors professional body
Documentation

The auditor shall document:

a. Theoverall audit strategy;

b. Theaudit plan; and

c. Anysignificant changesmade during the audit engagement to

theoverall audit strategyor theaudit plan, and thereasonsfor such

changes.
Documentation
The documentation of theoverall audit strategyis arecord of the key

decisionsconsiderednecessary to properly plan the auditand

tocommunicate significant mattersto the engagement team.

Documentation
The documentation of theaudit planis
arecord of the planned nature, timing and extent of risk assessment
proceduresandfurther audit proceduresat the assertion level in response to
the assessed risk
arecord of the proper planning of the audit proceduresthat can be reviewed
and approved prior to their performance.
The auditormay usestandard audit programs or audit completion
checklists, tailored as needed to reflect the particular engagement
circumstances.
Documentation

A record of thesignificant changes to the overall audit strategy and the

audit plan

resulting changes to the planned nature, timing and extent of audit

procedures,

explains why the significant changes were made, and the overall strategy

and audit plan finally adopted for the audit,

reflects the appropriate response to the significant changes occurring

during the audit

Additional Considerations
in Initial Audit Engagements

The auditor shall undertake the following activitiesprior to starting an

initial audit:
a. Performing proceduresrequired by PSA 220 regarding theacceptance
of the client relationship and the specific audit engagement; and
b. Communicating with the predecessor auditor, where there has
been achange of auditors, incompliance with relevant ethical
requirements.
Additional Considerations
in Initial Audit Engagements

Additional matters the auditor may consider in establishing the overall audit strategy and

audit plan include the following:

Unless prohibited by law or regulation, arrangements to be made with the predecessor

auditor, for example, toreview the predecessor auditors working papers.

Anymajor issues(including the application of accounting principles or of auditing and

reporting standards) discussed with management in connection with the initial selection

as auditor, the communication of these matters to those charged with governance and

how these matters affect the overall audit strategy and audit plan.
Additional Considerations
in Initial Audit Engagements

The audit procedures necessary toobtain sufficient appropriate audit

evidenceregardingopening balances(see PSA 510, Initial EngagementsOpening

Balances).

Other procedures required by the firms system of quality control for initial

audit engagements(for example, the firms system of quality control may require the

involvement of another partner or senior individual to review the overall audit strategy

prior to commencing significant audit procedures or to review reports prior to their

issuance).