14) Audit Strategy, Approach & Plan

Question 1

what is the purpose of audit strategy?

Answer 1

to guide the development of the audit plan

Question 2

what the four components of audit strategy?

Answer 2

1) scope
2) timing
3) direction
4) resources

Question 3

which factors can impact audit scope?

Answer 3

(range of work to cover)

• reporting requirements
• group engagements
• specialized knowledge
• effect of CAATs
• number and location of components to audit

Question 4

what can CAATs help with?

Answer 4

reduce the amount of work for the auditor to do as it automates certain IT processes

Question 5

what is the timing of the audit?

Answer 5

the timeline of the audit

Question 6

which factors can impact timing of the audit?

Answer 6

• client’s reporting timetable
• interim and final audit timelines (more interim, less final audit work)
• firm-specific deadlines
• plans for meetings

Question 7

what is direction of the audit?

Answer 7

factors which the auditor believes will impact the direction of the engagement team’s efforts

Question 8

which factors can impact direction of the audit?

Answer 8

• significant business developments
• areas of high ROMM
• effectiveness of controls
• mgmt commitment to control environment

Question 9

what are the resources of the audit?

Answer 9

human, physical, logical tools which will be required to execute the audit

Question 10

which factors can impact resources of the audit?

Answer 10

• number of team members
• experience / expertise
• equipment and software
• travel and logistics, budget

Question 11

what is the purpose of the audit approach?

Answer 11

considers whether the auditor should test controls

Question 12

what are the two audit approaches we can use?

Answer 12

• substantive approach

- combined approach

Question 13

what are the 3 components of the audit approach?

Answer 13

1) necessary
2) possible
3) desirable

Question 14

what do we consider for necessity?

Answer 14

• high volume of transactions
• high complexity of transactions
• high automation of transactions
• no visible audit trail

Question 15

what do we consider for possibility?

Answer 15

• if there are operationally effective controls in place (no controls, no test)
• ITGC are operating effectively
• sound control environment
• resources and expertise to test controls

Question 16

what do we consider for desirability?

Answer 16

• cost-benefit advantage to the firm
• client requests
• will provide value-added insight for client
• will allow audit staff to get training (new tech)
• auditor can rely on the 3-year rolling cycle for testing of controls

Question 17

what are the 3 components of the audit plan?

Answer 17

1) nature
2) timing
3) extent

Question 18

what do we look at for the nature of the audit procedure?

Answer 18

• purpose (ToC or substantive procedure)

- type

Question 19

how do we determine the purpose of an audit procedure?

Answer 19

look at the approach

Question 20

what is the timing of an audit procedure?

Answer 20

when is the audit performed / period to which the audit evidence applies

Question 21

what are the two main timeframes for audit procedures?

Answer 21

• interim testing

- year-end testing

Question 22

why would we do interim testing?

Answer 22

• obtain evidence throughout the year
• identify issues earlier
• less pressure at y/e

Question 23

why would we do year-end testing?

Answer 23

• it is when info becomes available
• some procedures require finalized AFS
• there are high-risk areas: so we ensure mgmt did not just continue doing fraud after the interim test, we test the results of the entire year

Question 24

what other factors should we consider for timing of the audit procedures?

Answer 24

• control environment – operates effectively all year round, not just during testing
• availability of info
• nature of risk (can only do procedure when risk is expected to happen)

Question 25

what is the extent of an audit procedure?

Answer 25

the quantity of work to be performed

Question 26

which factors can affect the extent of audit procedures?

Answer 26

• leve of ROMM and materiality
• level of assurance required
• use of CAATs (lowers cost)