AUDIT PLANNING

“involves developing a general audit

strategy and a detailed approach for the
expected conduct of the audit”
Understanding the Entity and
Its Environment Includes:

1. Industry, regulatory and other external factors

2. Nature of the entity

3. Objectives and strategies and related business risks

4. Measurement and Review of Entity’s performance

5. Internal Control
Sources of Information:

1. Review of Prior Years working paper

2. Tour of Client’s facilities

3. Discussion with people within and outside the entity

4. Reading Books, periodicals, and other publications

5. Reading corporate documents and financial reports

 Uses of Information:

1. Assessing risks and identifying potential problems

2. Planning and performing the audit effectively and

efficiently

3. Evaluating audit evidences as well as the

reasonableness of clients representations and estimates

4. Providing better service to client

Developing Audit Strategy:
Materiality

“Information is material if the omission or

misstatement could influence the economic
decision of users taken on the basis of the
financial statements”
 Developing Audit Strategy:
Materiality

Determine the Compare the

Determine the over- tolerable aggregate amount of
Perform audit
all Materiality Misstatement misstatements with
procedures
(FS Level) (Account Balance the over-all
Level) materiality

Planning Completion
 Developing Audit Strategy:
Audit Risk
INHERENT CONTROL DETECTION
AUDIT RISK
RISK RISK RISK

SUBSTANTIVE
AUDIT RISK
PROCEDURES
NATURE
INHERENT SUBSTANTIVE
RISK PROCEDURES TIMING

CONTROL SUBSTANTIVE
RISK PROCEDURES EXTENT

DETECTION SUBSTANTIVE
RISK PROCEDURES
Audit Risk & Materiality

AUDIT RISK
Materiality
 Analytical Procedures
Compare FS with
Expectations

Determine the difference

between the expected
and the recorded
balances

YES
Design MORE
Is there as significant Differences? SUBSTANTIVE TEST

Design LESS
NO
SUBSTANTIVE TEST
DOCUMENTING AUDIT PLAN

1. AUDIT PLAN

2. AUDIT PROGRAM

3. TIME BUDGET