AUDIT PLANNING

AP
Refers to the development of a
general strategy and a detailed
approach for the expected nature,
timing, and extent of audit
PSA 300

 PRE-ENGAGEMENT ACTIVITIES
-investigate new and existing clients
-obtain an engagement letter
-assign partner, manager, and staff to eng
PLANNING ACTIVITIES
-obtain knowledge of the clients business
-obtain preliminary understanding of IC
-design a preliminary account balance
audit program (considering knowledge of
IC)

FACTORS TO CONSIDER

Understanding
Experts
Materiality and Risk
Fraud and Non-compliance
Going Concern

OUTPUTS OF AP
1. An overall audit strategy that sets
out the direction, scope, and focus
of the audit teams efforts
Audit Strategy-approach to be
taken in performing the audit

a. w/ reliance on IC approach
-strong/eff. IC, fewer misstatements,
less ST
-inverse- controls
ST
b. no reliance on IC approach
-weak/missing IC, more
misstatements, more ST
-inverse- controls
ST

2. A detailed audit plan containing the

nature, extent, and timing of RAP-risk
assessment procedures and planned
further audit procedures at the
assertion level
3. Audit programs, tailored as needed
to reflect the particular engagement
circumstances
-Audit Program- it sets out the NET of
planned audit procedures required to
implement the overall audit plan. It
serves as a set of instructions to

SIMPLY STATED, THIS IS

THE LISTING OF ALL THE
THINGS WHICH THE
AUDITOR WILL USE TO
GATHER SUFFICIENT
APPROPRIATE EVIDENCE

UNDERSTANDING OF THE ENTITY

AND ITS ENVIRONMENT - INOMIN
Industry, regulatory and other external factors,
including the applicable FRF
Nature of the entity, including the entitys
selection and application of acctg policies
Objectives and strategies and the related
business risks that may result in an MM of FS
Measures of performance
Internal Control
*in order to understand the events and
transactions that may have an effect on the
clients FS

MATERIALITY
-omission or misstatement that could
influence the economic decision of users on
the basis of the FS
Preliminary estimate of materiality-evidence
Inverse relationship
formula: % of NI, total assets, SHE, Sales
Design audit procedures that would be
expected to detect misstatements that
aggregatethe SMALLEST

Tolerable Misstatement- allocation of the

preliminary judgment about materiality to
account balances
Cash-20,000
AR- 40,000
PPE-60,000
Total 120,000 overall materiality
*regardless of how the allocation of the PJ about
materiality was done, when the audit is
complete the auditor must be confident that the
combined errors in all accounts are LESS THAN
OR EQUAL TO THE PRELIMINARY JUDGMENT

EVIDENCE MATERIALITY RISK

ST

AUDIT RISK MODEL

AR = INHERENT RISK
X
CONTROL RISK
X
DETECTION RISK

DESIRED LEVEL OF AUDIT RISK

ST

INHERENT RISK

ST

CONTROL RISK

ST

DETECTION RISK

ST

TYPES OF PROCEDURES
RAP- RISK ASSESSMENT PROCEDURES
-required
-used to obtain an understanding of
the entity and its environment,
including its IC, to assess the risks of
MM at the FS and assertion levels
-done during planning

INCLUDES:
a. INQUIRY - seeking info
b. INSPECTION physical examination
c. OBSERVATION looking at the
process
d. ANALYTICAL PROCEDURES- ratio
analysis, variance analysis, trend
analysis
-required during planning
-PSA 520-analytical procedures

TOC- TEST OF CONTROLS

-used to verify the effectiveness of
controls
-to justify reliance on IC approach
INCLUDES:
a. INQUIRY
b. INSPECTION
c. OBSERVATION
d. REPERFORMANCE
*NO ANALYTICAL PROCEDURES

ST- SUBSTANTIVE TEST

-required
-used to detect material
misstatements
A. Test of details
-test of balances
-test of transaction
INCLUDES: INQUIRY, INSPECTION,
OBSERVATION, RECALCULATION, and
CONFIRMATION
B. Analytical Procedures (optional)

OVERALL AUDIT STRATEGY

CORNIK
Coordination, Direction, Supervision, &
Review
Other Matters- going concern, related
parties
Risk and Materiality
NET of Audit Procedures
Internal Control
Knowledge