Audit Strategy

Question 1

General Overall Response

Answer 1

1. Generic ISA 330 & ISA 240
   • Professional Sceptism
   • More experienced staff
   • Incorporate element of unpredictability
   • Scrutinize Journal entries
   • Evaluate selection and application of accounting polices

Question 2

Scope: how much you need to audit and who you need to audit

Answer 2

 Need to explain how this affects the scope i.e. effect on resources, time and expertise? More or less audit work required as a result?

• Subsidiary needing consolidation – more audit work, more staff
• Multiple locations – inventory counts and control testing
• Use of other auditors? Use of other firms in Network?
• Non-assurance services – assess independence
• Open a new division – need to audit?
• Internal audit function – can it be relied on?
• Listed – JSE listing requirements need to be adhered to

Question 3

Timing

Answer 3

“The year end is [ ], the deadline is [ ], thus we have a tight audit deadline. The implications are:”
• May need more staff
• Large volume of transactions/complexity/expanding at year-end means that we may not be able to do all the audit work at year-end. Thus do work at interim or roll forward testing.
• High inherent risk, thus need to weight the testing to substantives at year end on the trial balance
• Large number of locations
- client availability for meetings
- the extent of computerisation of the client

Question 4

Direction

Answer 4

• Materiality is conservative thus more audit work will need to be performed.

• “The following areas need audit emphasis”:
 List high-risk areas/significant business developments
o [Fact from the scenario] + [risk]
o e.g. upgrade IT system increased risk of error from transfer
o e.g. expanding company/new division/Subsidiary acquired
o e.g. overdraft increasing and working capital problems
o e.g. manufacturer thus, risk that inventory incorrectly costed
- consolidation –> currency conversion, cut-off as sub has different YE, consistency of acc policies

If other auditors involved:
focus of audit:
- Assessing whether reliance can be placed on the work performed by the other 1 auditors in terms of ISA 600

• Control considerations: (substantive vs. controls)
o Risk of override
o Internal control function
o Managements attitude

Therefore  more substantive based audit approach

Question 5

Resources

Answer 5

• IT system at client – need to rely on computerised controls. Thus need to do ITGC review and use CAATs. Thus need IT expertise on the audit team.
• High risk – more experienced audit staff
• Specialised nature – Experts needed? E.g. Fair valuation of assets