Planning an Audit - AICPA

1 Planning an Audit277AU-C Section 300 Planning an AuditSource: SAS No. 122; SAS No. 128; SAS No. for audits of financial statements for periods ending on orafter December 15, 2012, unless otherwise of This section addresses the auditor's responsibility to plan an Audit offinancial statements. This section is written in the context of recurring considerations in an initial Audit engagement are separately identi-fied in this section. Matters related to Planning audits of group financial state-ments are addressed in section 600,Special Considerations Audits of GroupFinancial Statements (Including the Work of Component Auditors). (Ref: .A3)The Role and Timing of an Audit involves establishing the overall Audit strategy forthe engagement and developing an Audit plan. Adequate Planning benefits theaudit of financial statements in several ways, including the following: Helping the auditor identify and devote appropriate attention toimportant areas of the Audit Helping the auditor identify and resolve potential problems on atimely basis Helping the auditor properly organize and manage the Audit en-gagement so that it is performed in an effective and efficient man-ner Assisting in the selection of engagement team members with ap-propriate levels of capabilities and competence to respond to an-ticipated risks and allocating team member responsibilities Facilitating the direction and supervision of engagement teammembers and the review of their work Assisting, when applicable, in coordination of work done by audi-tors of components and specialistsEffective section is effective for audits of financial statements for periodsending on or after December 15, objective of the auditor is to plan the Audit so that it will be per-formed in an effective manner.

2 2021, AICPAAU-C Assessment and Response to Assessed RisksRequirementsInvolvement of Key Engagement Team engagement partner and other key members of the engagementteam should be involved in Planning the Audit , including Planning and partici-pating in the discussion among engagement team members. (Ref: par..A4 .A5)Preliminary Engagement auditor should undertake the following activities at the beginningof the current Audit procedures required by section 220,Quality Con-trol for an Engagement Conducted in Accordance With GenerallyAccepted Auditing Standards, regarding the continuance of theclient relationship and the specific Audit compliance with relevant ethical requirements in ac-cordance with section an understanding of the terms of the engagement asrequired by section 210,Terms of Engagement(Ref: par..A6 .A8) Planning auditor should establish an overall Audit strategy that sets thescope, timing, and direction of the Audit and that guides the development ofthe Audit establishing the overall Audit strategy, the auditor the characteristics of the engagement that define itsscope; the reporting objectives of the engagement in order toplan the timing of the Audit and the nature of the communicationsrequired; the factors that, in the auditor's professional judgment,are significant in directing the engagement team's efforts; the results of preliminary engagement activities and,when applicable, whether knowledge gained on other engage-ments performed by the engagement partner for the entity is rel-evant; the nature, timing, and extent of resources necessary toperform the engagement.

3 (Ref: par..A9 .A13).09 The auditor should develop an Audit plan that includes a descriptionof the nature and extent of planned risk assessment procedures, asdetermined under section 315,Understanding the Entity and ItsEnvironment and Assessing the Risks of Material nature, timing, and extent of planned further Audit proce-dures at the relevant assertion level, as determined under section330,Performing Audit Procedures in Response to Assessed Risksand Evaluating the Audit Evidence ObtainedAU-C 2021, AICPAP lanning an planned Audit procedures that are required to be carriedout so that the engagement complies with generally accepted au-diting standards (Ref: par..A14 .A16).10 The auditor should update and change the overall Audit strategy andaudit plan, as necessary, during the course of the Audit . (Ref: par..A17).11 The auditor should plan the nature, timing, and extent of direction andsupervision of engagement team members and the review of their work. (Ref:par.)

4 A18 .A19)Determining the Extent of Involvement of ProfessionalsPossessing Specialized auditor should consider whether specialized skills are needed inperforming the Audit . If specialized skills are needed, the auditor should seekthe assistance of a professional possessing such skills, who either may be on theauditor's staff or an outside such circumstances, the auditorshould have sufficient knowledge to communicate the objectives of the otherprofessional's work; evaluate whether the specified Audit procedures will meetthe auditor's objectives; and evaluate the results of the Audit procedures ap-plied as they relate to the nature, timing, and extent of further planned auditprocedures. Section 620,Using the Work of an Auditor's Specialist, addressesthe auditor's use of the work of specialists in an Audit . (Ref: par..A20 .A21)Additional Considerations in Initial Audit auditor should undertake the following activities prior to startingan initial procedures required by section with the predecessor auditor when there hasbeen a change of auditors, in accordance with section 2102(Ref:par.

5 A22) auditor should include in the Audit documentation the overall Audit Audit significant changes made during the Audit engagement to theoverall Audit strategy or the Audit plan and the reasons for suchchanges (Ref: par..A23 .A26)Application and Other Explanatory MaterialThe Role and Timing of Planning (Ref: par..01).A1 The nature and extent of Planning activities will vary according to thesize and complexity of the entity, the key engagement team members' previous1 Paragraph .16 of section 220,Quality Control for an Engagement Conducted in Accordance WithGenerally Accepted Auditing .11 of section 210,Terms of .08 .12 and .A8 of section 230, Audit Documentation. 2021, AICPAAU-C Assessment and Response to Assessed Risksexperience with the entity, and changes in circumstances that occur during theaudit is not a discrete phase of an Audit but rather a continual anditerative process that often begins shortly after (or in connection with) the com-pletion of the previous Audit and continues until the completion of the currentaudit engagement.

6 Planning , however, includes consideration of the timing ofcertain activities and Audit procedures that need to be completed prior to theperformance of further Audit procedures. For example, Planning includes theneed to consider, prior to the auditor's identification and assessment of the risksof material misstatement, such matters as the following: The analytical procedures to be applied as risk assessment proce-dures A general understanding of the legal and regulatory frameworkapplicable to the entity and how the entity is complying with thatframework The determination of materiality The involvement of specialists The performance of other risk assessment auditor may decide to discuss elements of Planning with the en-tity's management to facilitate the conduct and management of the Audit en-gagement (for example, to coordinate some of the planned Audit procedureswith the work of the entity's personnel). Although these discussions often oc-cur, the overall Audit strategy and the Audit plan remain the auditor's responsi-bility.

7 When discussing matters included in the overall Audit strategy or auditplan, care is required in order not to compromise the effectiveness of the au-dit. For example, discussing the nature and timing of detailed Audit procedureswith management may compromise the effectiveness of the Audit by makingthe Audit procedures too of Key Engagement Team Members (Ref: par..05).A4 The involvement of the engagement partner and other key membersof the engagement team in Planning the Audit draws on their experience andinsight, thereby enhancing the effectiveness and efficiency of the Planning pro-cess. The engagement partner may delegate portions of the Planning and su-pervision of the Audit to other firm 315 requires a discussion among the Audit team about the sus-ceptibility of the entity's financial statements to material also may include the discussion regarding the risks of material mis-statement due to fraud, as required by section 240,Consideration of Fraud ina Financial Statement objective of this discussion is for membersof the Audit team to gain a better understanding of the potential for materialmisstatements of the financial statements resulting from fraud or error in thespecific areas assigned to them and to understand how the results of the auditprocedures that they perform may affect other aspects of the Audit , includingthe decisions about the nature, timing, and extent of further Audit .

8 11 of section 315,Understanding the Entity and Its Environment and Assessing theRisks of Material .15 of section 240,Consideration of Fraud in a Financial Statement 2021, AICPAP lanning an Audit281 Preliminary Engagement Activities (Ref: par..06).A6 Performing the preliminary engagement activities, which are specifiedin paragraph .06, at the beginning of the current Audit engagement assiststhe auditor in identifying and evaluating events or circumstances that mayadversely affect the auditor's ability to plan and perform the Audit these preliminary engagement activities enables the au-ditor to plan an Audit engagement for which, for example the auditor maintains the necessary independence and ability toperform the engagement. the auditor has no issues with management integrity that mayaffect the auditor's willingness to continue the engagement. the auditor has no misunderstanding with the entity about theterms of the auditor's consideration of client continuance and relevant eth-ical requirements, including independence, occurs throughout the Audit en-gagement as conditions and changes in circumstances occur.

9 Performing initialprocedures on both client continuance and evaluation of relevant ethical re-quirements (including independence) at the beginning of the current Audit en-gagement means that they are completed prior to the performance of othersignificant activities for the current Audit engagement. For continuing auditengagements, such initial procedures often begin shortly after (or in connec-tion with) the completion of the previous ActivitiesThe Overall Audit Strategy (Ref: par..07 .08).A9 The process of establishing the overall Audit strategy assists the au-ditor to determine, subject to the completion of the auditor's risk assessmentprocedures, such matters as the following: The resources to deploy for specific Audit areas, such as the useof appropriately experienced team members for high risk areas orthe involvement of specialists on complex matters The amount of resources to allocate to specific Audit areas, such asthe number of team members assigned to observe the inventorycount at material locations, the extent of review of component au-ditors' work in the case of group audits, or the Audit budget (inhours) to allocate to high risk areas When these resources are to be deployed, such as whether at aninterim Audit stage or at key cut-off dates How such resources are managed, directed, and supervised, suchas when team briefing and debriefing meetings are expected tobe held, how the engagement partner and manager reviews areexpected to take place (for example, on site or off site)

10 , and whetherto complete engagement quality control appendix, "Considerations in Establishing the Overall AuditStrategy," lists examples of considerations in establishing the overall the overall Audit strategy has been established, an Audit plancan be developed to address the various matters identified in the overall Audit 2021, AICPAAU-C Assessment and Response to Assessed Risksstrategy, taking into account the need to achieve the Audit objectives throughthe efficient use of the auditor's resources. The establishment of the overall au-dit strategy and the detailed Audit plan are not necessarily discrete or sequen-tial processes but are closely interrelated because changes in one may result inconsequential changes to the Specific to Smaller, Less Complex audits of smaller entities, the entire Audit may be conducted by avery small Audit team. Many audits of smaller entities involve the engagementpartner (who may be a sole practitioner) working with one engagement teammember (or without any engagement team members).