ISA-300
1
By: Rehan
Farhat
ISA – 300
Planning an Audit of Financial Statement
1. Purpose of ISA-300:
To establish standards and provide guidance on the considerations and activities applicable to
planning an audit of financial statement. [Framed in context of recurring audit]
2. Planning Audit in an Effective Manner:
The auditor should plan an audit so that the engagement will be in an effective manner.
3. Panning an Audit involves:
a) Establishing overall audit strategy for the engagement; and
b) Developing an audit plan.
4. Why Planning is necessary?
i. Attention is devoted to more important areas of audit and potential problems are identified.
ii. Effective and efficient audit.
iii. Proper assignment of work to assistants.
iv. Adequate direction, supervision and review.
v. Coordination with other auditors and experts.
vi. Work is done expeditiously.
5. Planning is a continuous and iterative process.
Planning Activities: The Auditor plans:
i. The discussion among the engagement team members.
ii. The analytical procedures to be applied as risk assessment procedures.
iii. The obtaining of a general understanding of the legal and regulatory framework applicable
to the entity and how the entity is complying with that framework.
iv. The determination of materiality
v. The involvement of experts
vi. The performance of Other Risk Assessment procedures prior to identifying and
vii. Assessing the risk of material misstatement
viii. Performing further audit procedures at the assertion level for classes of transactions,
accounting balances and disclosures that are responsive to those risks.
6. Preliminary Engagement Activities:
a) The auditor should perform the following activities at the beginning of current audit
engagement:
b) Perform procedures regarding the continuance of client relationship and the specific audit
engagement. [ISA-220]
c) Evaluate compliance with ethical requirements, including independence. [ISA-220]
d) Establish an understanding of the terms of engagements.
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ISA-300
2
By: Rehan
Farhat
7. Purpose of performing Preliminary Activities:
To ensure that:
i. The auditor has considered any events or circumstances that may adversely affect the
auditor’s ability to plan and perform audit engagement to reduce the audit risk to an
acceptably low level.
ii. The auditor has maintained necessary independence and ability to perform the
engagement.
iii. There are no issues with the integrity of management.
iv. There are no misunderstandings with the client.
Planning Activities:
A. The Overall Audit Strategy:
8. The auditor should establish the overall audit strategy for the audit.
9. Overall audit strategy


sets the scope, timing and direction of the audit; and
guides the development of the more detailed audit plan.
The establishment of the Overall Audit Strategy involves:
i. Scope:
Determining the characteristics of the engagement that defines its scope, (FS F.work).
ii. Timings:
Ascertaining the reporting objectives of the engagement to plan the timings of the audit
and the nature of the communication required. (Deadlines)
iii. Direction:
Considering the important factors that will determine the focus of the engagement
team’s efforts. (App Materiality lvl)
iv. The auditor also considers:
 the result of preliminary activities; and
 experience gained on other engagements performed for the entity.
10. Objectives of developing overall audit strategy:
a. Helps the auditor to ascertain the nature, timing and extent of resources necessary to
perform the engagement.
b. It sets out clearly:
c. The resources to deploy for specific audit areas;
d. The amount of resources to allocate to specific audit areas;
e. When these resources are deployed, such as whether at an interim audit stage or at key
cut-off dates; and
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ISA-300
3
Farhat
By: Rehan
f. How such resources are managed, directed and supervised.
11.
12. Audit of Small Entities:



The entire audit may be conducted by a very small audit team.
With a smaller team, coordination and communication between team members are easier.
Establishing the overall audit strategy for the audit of small entity need not be a complex
or time consuming exercise.
B. The Audit Plan:
13. The auditor should develop an audit plan for the audit in order to reduce audit risk to an
acceptably low level.
14. Characteristics of Audit Plan:
o
o
More detailed than overall audit strategy.
Includes nature, timing and extent of audit procedures to be performed by engagement
team members in order to obtain sufficient appropriate audit evidence to reduce audit risk
to an acceptably low level.
15. Contents of Audit Plan:
a) A description of the nature, timing and extent of planned risk assessment procedures
sufficient to assess the risk of material misstatement. [ISA-315]
b) A description of the nature, timing and extent of planned further audit procedures at the
assertion level for each material class of transaction, account balance and disclosure.
[ISA-315]
c) Such other audit procedures required to be carried out for the engagement in order to
comply with ISAs.


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Planning for these audit procedures takes place over the course of the audit as the
audit plan for the engagement develops.
However, Planning of the nature, timing and extent of specific audit procedures
depends on the outcome of those risk assessment procedures.
Changes to Planning Decisions during the Course of the Audit:
16. The overall audit strategy and the audit plan should be updated and changed as
necessary during the course of the audit.
17. The auditor may need to modify the overall audit strategy and audit plan, and thereby the
resulting planned nature, timing and extent of further audit procedures.
____________________________________________________________________________________________
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ISA-300
Farhat
4
By: Rehan
Information may come to the auditor’s attention that differs significantly from the information
available when auditor planned the audit procedures.
In such circumstances, the auditor re-evaluates the planned audit procedures, based on the
revised consideration of assessed risks at the assertion level for all or some of the classes of
transactions, account balances or disclosures.
Direction, Supervision and Review:
18. The Auditor should plan the nature, timing and extent of Direction and Supervision
of engagement team members and Review of their work.
19. The nature, timing and extent of the direction and supervision of engagement team members
and review of their work vary depending on many factors, including the size and complexity of
the entity, the area of audit, the risk of material misstatement, and the capabilities and
competence of personnel performing the Audit work. [See ISA-220]
20. As the assessed risk of material misstatement increases, the auditor ordinarily increases the
extent and timeliness of direction and supervision of engagement team members and performs
a more detailed review of their work.
Similarly, the auditor plans the nature, timing and extent of review of the engagement team’s
work based on the capabilities and competence of the individual team members performing the
audit work.
21.



Audit of small entities by one auditor
Consultation is also beneficial in some cases.
Documentation
22. The Auditor should document the overall audit strategy and the audit plan,
including any significant changes made during the audit engagement.
23. Documentation includes recording key decisions (considered necessary to properly plan the
audit and to communicate significant matters to the engagement team).
24. The auditor’s documentation of the audit plan is sufficient to demonstrate the planned nature,
timing and extent of risk assessment procedures, and further audit procedures at the assertion
level for each class of transactions, account balance, and disclosure in response to assessed
risks. The auditor may use standard audit program or audit completion checklist.
25. In case of significant changes to the original audit plan, theses reason(s) and the responses to
those risks are also a part of Audit Documentation.
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ISA-300
Farhat
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By: Rehan
A record to the significant changes to the overall audit strategy and the audit plan, and
resulting changes to the planned nature, timing and extent of audit procedures, explains the
overall audit strategy and audit plan finally adopted for the audit and demonstrates the
appropriate response to significant changes occurring during the audit.
26. The form and extent of documentation
depend on such matters as
o the size and complexity of the entity,
o materiality,
o the extent of other documentation, and
o the circumstances of the specific audit engagement.
Communication with Those Charged with Governance and Management
27.

The auditor may discuss elements of planning with TCWG and Management. Discussion with
those charged with governance ordinarily includes the overall audit strategy and timing of
audit, including any limitations thereon, or any additional requirements.

Discussion with the management often occurs to facilitate the conduct and management of
the audit engagement.

Although these discussions often occur, the overall audit strategy and the audit plan
remains Auditor’s responsibility.

Care is required while discussing the matters in overall audit strategy or audit plan by not to
compromise on the effectiveness by making procedures much predictable.
Additional Considerations in Initial Audit Engagements:
28. The auditor should perform the following activities prior to starting an initial audit:
a) Perform procedures regarding the acceptance of the client relationship and
the specific audit engagement [ISA-220]
b) Communicate with the previous auditor, where there has been a change of
auditors, in compliance with relevant ethical requirements.
29. For initial audits, additional matters the auditor may consider in developing the overall audit
strategy and audit plan include the following:
a) Arrangements to be made with the previous auditor.
b) Any major issue discussed with management in connection with the initial selection as
auditors, the communication of these matters to those charged with governance, and
how these matters affect the overall audit strategy and audit plan.
____________________________________________________________________________________________
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ISA-300
Farhat
6
By: Rehan
c) The planned audit procedures to obtain sufficient appropriate audit evidence regarding
opening balances. [ISA-510(2)]
d) The assignment of firm personnel with appropriate levels of capabilities and competence
to respond to anticipated significant risks.
e) Other procedures required by Firm’s system of quality control for initial audit
engagements.
30. Effective Date:
On or after 15th December 2004
____________________________________________________________________________________________
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