AUDIT PLANNING

Why Planning ?

• People
• Timing
• Focus
• Problem Areas
• Amount of Work
• Nature of work

We Do all the above Things in Audit Planning "To Asses & Reduce Risk" 


ISA - 300 deals with "Planning and Audit of Financial Statements"

• The Objective of audit planning is to ensure that an audit is carried out in an effective manner (timely and with quality).
• The audit planning is carried out before the start of the audit engagement (after the appointment of the auditor).
• The Engagement partner heads the process of audit planning alongside the other key members of the engagement team.
• Planning is a detail exercise which requires sufficient knowledge of the business and client.
• An audit planning involves establishing the overall audit strategy for the engagement and developing an audit plan.
• The nature and extent of the audit planning activities will vary according the size and complexity of the entity, the key management team members previous experience with the entity, and changes in all circumstances that occur during the audit engagement.
• Planning is not a discrete phrase of audit, but rather a continual and iterative process that often begins shortly after completion of the previous audit and continues until the completion of the current audit engagement.

ELEMENTS # 1 CHARACTERISTICS OF ENGAGEMENT

• The financial reporting framework on which the financial information to be audited has been prepared, including any need for reconciliations to another financial reporting framework.

• Industry specific reporting requirements such ac exports mandated by industry regulators. E.g.(Reporting requirement by state bank when you are doing the audit of the bank).
• The expected audit coverage, including the number and locations of components that determine how the group is to be consolidated.
• The nature of control relationships between a parent and its components (subsidiary) that determine how the group is to be consolidated.
• The extent to which components are audited by other auditors.

E.g:-

• The nature of the business segments to be audited, including the need for specialized knowledge (ISA 620)
• The availability of the work  of internal auditors (ISA 610) and the extent of the auditor's potenial reliance on such work.
• The entity's use of service organizations (ISA 402) and how the auditor may obtain evidence concerning the design or operation of control performed by them. 

E.g:- 

•  The expected use of audit evidence obtained in previous audits, for example, audit evidence related to risk assessment procedures and tests of controls.

•  The effect of information technology on the audit procedures, including the avilability of data and the expected use of computer assisted audit techniques.
• The availability of client personnel and data.

ELEMENT # 2 REPORTING OBJECTIVES

• The entity's timetable for reporting, such as at interim and final stages.
• The organization of meetings with management and those charged with governance to discuss the nature, timing and extent of the audit work.
• The discussion with management and those charged with governance (ISA 260/265) regarding the expected type and timing of reports to be issued and other communications, both written and oral, including the auditor's report, management letters and communications to those charged with governance.
• The discussion with management regarding the expected communications on the status of audit work through out the engagement.
• Communication with auditors of components regarding the expected types & Timing of reporst to be issued and other communications in connection with the audit of components.
• The expected nature and timing of communications among engagement team members, including the nature and timing of team meetings and timing of the review of work performed.

ELEMENT # 3/4 SIGNIFICANT FACTORS, PRELIMINARY ENGAGEMENT ACTIVITIES,   
AND KNOWLEDGE GAINED ON OTHER ENGAGEMENTS.

• The determination of materiality in accordance with(ISA320).
• The preliminary identification of significant components and material classes of transactions, account balances and disclosures.
• Preliminary identification of areas where there may be a higher risk of material misstatement. The impact of the assessed risk of material misstatement at the overall financial statement level on direction, supervision and review.
• The manner in which an auditor emphasizes to engagement team members the need to maintain a questioning mind and to exercise professional skepticism in gathering and evaluating audit evidence.
• Results of previous audits that involved evaluating the operating effectiveness of internal control, Including the nature of identified deficiencies and action taken to address them.
• Evidence of management's commitment to the design, implementation and maintenance of sound internal control, including evidence of appropriate documentation of such internal control.
• Significant business developments affecting the entity, including changes in information technology and business processes, changes in key management, and acquisitions, mergers and divestments.
• Significant industry developments such as changes in industry regulations and new reporting requirements.
• Significant changes in the financial reporting framework, such as changes in accounting standards.
• Other significant relevant developments, such as in the legal enviornment affecting the entity.