ISA 300 – Planning an Audit of Financial Statements

2 Initial activities

At the start of current audit engagement before any other significant activities take place, auditor is required to perform the following procedures:

• Performing procedures regarding client continuance and specific audit engagement
• Evaluation of compliance with ethical requirements of auditor including independence
• Agreeing the terms of engagement with the client and understanding of such terms

Performing such initial activities enables the auditor to identify any problems right at the beginning of engagement which may affect the audit adversely. Such activities also help auditor to ensure

• compliance with ethical and independence requirements
• complete understanding of terms of engagement between auditor and client

3 Audit planning activities

Auditor establishes audit strategy that sets the scope, timing and direction of audit engagement. Once audit strategy is in place audit plan can be developed on the basis of strategy.

In establishing audit strategy auditor:

• Determines the characteristics of engagement that sets the scope of engagement. For example; applicable accounting framework, users of auditor’s report etc
• Identify the reporting objectives of the engagement which helps in determining the timing of the audit and the nature of communication required. For example; deadline for interim reports, stocktaking schedule etc.
• Consider the important factors that will determine the direction of audit engagement.

In addition to above points, while establishing an audit strategy auditor shall:

• Considers the results of initial engagement activities and knowledge and experience of auditor of similar audits
• Determine the nature, timing and extent of resources required to perform audit

Once the audit strategy is in place audit plan can be developed which includes the description of:

• Nature, timing and extent of risk assessment procedures
• Nature, timing and extent of further audit procedures
• Nature, timing and extent of other audit procedures

As said earlier, planning is not one time activity. Auditor may need to revisit the audit strategy and audit plan if the change is required in either strategy, plan which may require change in nature, timing and extent of audit procedures based on revised plan or strategy. Such changes can occur due to:

• Unexpected events
• Changes in condition
• Audit evidence obtained
• Acquiring information that is significantly different from the information auditor had at the time of planning.

The level of direction, supervision and review of team members required by the auditor depends on different factors such as:

• Entity under consideration, its size and complexity etc.
• The area of audit
• Assessment of risk of material misstatement and auditor’s expectations
• Capabilities and competencies of engagement team members

In case audit is conducted by auditor alone then there is no need of such supervision or review as auditor himself will be aware of the facts. However, it is recommended that auditor consult suitably experienced auditor or auditor’s body in case unusual or complex issues arise when auditor himself conducts the engagement.