The International Standard on Auditing (ISA) 300. Planning an audit of financial statements should be read in the context of the “Preface to International Standards on Quality Control, Auditing, Reviews, Other Assurance and Related Services, which sets out the application and authority of the ISAs.
Preliminary work activities
The auditor should perform the following activities at the beginning of the current audit engagement:
Perform procedures regarding the continuation of client relationships and specific audit work (see ISA 220. Quality Control for Audits of Historical Financial Information, for additional guidance).
The auditor's consideration of client follow-up and ethical requirements, including independence, occurs throughout the performance of the audit engagement as conditions and changes in circumstances occur.
Planning activities
The overall audit strategy
The auditor shall establish the overall audit strategy for the audit.
The overall audit strategy sets the scope, timing, and direction of the engagement, and guides the development of the more detailed audit plan. Establishing the overall audit strategy involves:
a) Determine the characteristics of the work that define its scope, such as the financial reporting framework used, the specific information requirements by industry and the location of the entity's components.
b) Check the objectives of reporting the work to plan the timing of the audit and the nature of the communications that are required, such as the deadlines for provisional and final information, as well as the key dates for expected communications with the administration and with the those charged with corporate governance.
The audit plan
The auditor shall develop an audit plan in order to reduce audit risk to an acceptably low level.
The audit plan is more detailed than the overall audit strategy and includes the nature, timing, and extent of procedures to be performed by engagement team members to obtain sufficient appropriate evidence to reduce risk to an acceptably low level. The audit plan documentation also serves as a record of the proper planning and performance of the audit procedures that can be reviewed and approved prior to the performance of additional procedures.
The audit plan includes:
. A description of the nature, timing and extent of the planned risk assessment procedures, sufficient to assess the risks of material misstatement. As determined under ISA 315. Understanding the entity and its environment and assessing the risks of material misstatement.
. A description of the nature, timing, and extent of planned additional audit procedures at the assertion level, for each class of material transactions, account balances, and disclosure, as determined under ISA 330, Auditor Procedures in Response to the risks assessed. The plan for the additional audit procedures reflects the auditor's decision as to whether or not to test the effectiveness of the controls and the nature.
Timeliness and extent of planned substantive procedures
The other procedures that are required to be carried out for the work to comply with the ISAs (for example, seek direct communication with the entity's attorneys).
The planning of these audit procedures takes place during the course of the work, as the audit plan is developed. For example, planning of risk assessment procedures by the auditor usually occurs early in the audit process. However, the planning of nature.
Timing and extent of specific additional audit procedures depends on the outcome of those risk assessment procedures.
In addition, the auditor may begin the performance of additional audit procedures for some classes of transactions, account balances, and disclosures before completing the more detailed audit plan of all remaining additional procedures.
Documentation
The auditor should document the overall audit strategy and audit plan, including any significant changes made during the engagement.
Documentation by the auditor of the overall audit strategy records the key decisions deemed necessary to properly plan the audit and communicate important matters to the engagement team. For example, the auditor may summarize the overall audit strategy in the form of a memorandum. It contains key decisions regarding the general scope, timing and conduct of the audit.
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