ISA 300 - Planning an audit of financial statements Flashcards
What are the benefits of planning an audit according to ISA 300?
Planning an audit ensures:
1) Important areas receive adequate attention promptly;
2) Potential problems are identified and resolved timely;
3) The audit is performed effectively and efficiently;
4) Team members with appropriate skills are selected;
5) Effective direction and supervision of the engagement team are facilitated.
What initial procedures are performed at the beginning of an audit engagement?
At the beginning of an audit, the auditor will:
1) Perform procedures regarding the continuance of the client relationship;
2) Establish an understanding of the terms of engagement as per ISA 210;
3) Evaluate compliance with relevant ethical requirements. The engagement partner and key team members should be involved in this planning.
What does establishing an overall audit strategy involve?
The overall audit strategy outlines the scope, timing, and direction of the audit. It includes deciding the scope (reporting standards, IASs), timing (fieldwork, reporting deadlines), and direction (assessing high-risk areas, determining materiality, planning site visits).
What factors should be considered when determining the scope of an audit?
Scope considerations include:
1) The financial reporting framework;
2) Applicability of International Accounting Standards;
3) Specific industry or other special reporting requirements;
4) Differences in auditing listed companies, private companies, charities, and regulated entities like banks and insurance companies; 5) Presence of multiple locations or the need for group audits.
What are the key timing considerations in audit planning according to ISA 300?
Timing considerations include deadlines for final reporting, interim reports (if applicable), reports to management, and reports to those charged with governance. It also covers the scheduling of interim and final audit visits.
What does ‘direction’ in audit planning entail?
The direction of the audit involves a preliminary assessment of materiality, identification of high-risk areas, and identification of material components and account balances.
What considerations are important when establishing the overall audit strategy?
When establishing the audit strategy, consider characteristics of the engagement, reporting objectives, significant factors in the auditor’s judgment, and allocation of necessary resources for the engagement.
What elements are included in developing an audit plan?
The audit plan should cover the nature, timing, and extent of risk assessment procedures, audit procedures at the assertion level, and any other procedures required to comply with ISAs. The strategy and plan can be updated anytime during the audit.
What needs to be considered in planning an audit strategy?
Planning needs include applying analytical procedures, involving experts if necessary, determining materiality, understanding the legal and regulatory framework, and performing other risk assessment procedures.
What are some possible strategies for conducting an audit?
Strategies may include deciding between interim or final audits, choosing substantive tests or reliance on controls (with reduced substantive testing), and opting between analytical review or tests of detail. Each audit strategy should be tailored to the specific audit.
How do strategy and the audit plan relate in the audit process?
The audit strategy outlines the important areas, scope, timing, and required skills and resources. This leads into the audit plan, which specifies the analytical procedures, use of experts, and other planning elements. The procedures detailed in the plan then guide the execution of the audit.
What are the initial procedures to be performed during audit planning as per ISA 300?
Initial procedures include:
1) Reviewing the Letter of Engagement;
2) Ascertaining the nature of the client’s business;
3) Reviewing the client’s accounting system, such as flowcharts and narrative notes;
4) Reviewing the Permanent Audit File and last year’s Current Audit File;
5) Reviewing previous years’ financial statements.
What financial assessments are involved in the planning of an audit?
Financial assessments during audit planning involve examining the up-to-date financial position through interim and management accounts. This helps identify critical audit areas and potential audit issues.
What are the typical planning procedures outlined in ISA 300 for an audit of financial statements? (this is not a complete or comprehensive list of planning procedures)
- Review the Letter of Engagement and the nature of the client’s business.
- Obtain and review the client’s accounting system, including flowcharts and narrative notes.
- Review the Permanent Audit File, last year’s Current Audit File, and previous years’ financial statements.
- Examine the entity’s current financial position through interim and management accounts.
- Identify critical audit areas and potential issues, and perform analytical procedures.
- Discuss with management about business issues, trends, changes in the regulatory framework, and accounting policies.
- Assess business risk, determine materiality limits, and decide the reliance on internal controls versus the need for independent substantive evidence.
- Consider the role of the internal audit team and the impact of related parties.
