As part of audit planning, the auditor plans the direction and supervision of engagement team members and plans for the review of their work. (AU-C 300.11)
Determining the Extent of Involvement of Professionals Possessing Specialized Skills
The auditor should consider whether specialized skills are needed in performing the audit. (AU-C 300.12) For example, the auditor may need to involve the use of an information technology (IT) specialist to:
● Determine the effect of IT on the audit
● Understand the IT controls
● Design and perform tests of IT controls or substantive procedures
In determining whether an IT professional is needed, the auditor should consider factors such as the following:
● The complexity of the entity's systems and IT controls and the manner in which they are used in conducting the entity's business
● The significance of changes made to existing systems, or the implementation of new systems
● The extent to which data is shared among systems
● The extent of the entity's participation in electronic commerce
● The entity's use of emerging technologies
● The significance of audit evidence that is available only in electronic form
(AU-C 300.A18)
Additional Considerations in Initial Audit Engagements
Before starting an initial audit, the auditor should:
● Perform procedures regarding the acceptance of the client relationship and the specific audit engagement (see AU-C 220).
● Communicate with the previous auditor, where there has been a change of auditors (see Section 210).
(AU-C 300.13)
When developing the overall audit strategy and audit plan, the auditor should consider:
● Arrangements to be made with the previous auditor – for example, to review the previous auditor's audit documentation.
● Any major issues (including the application of accounting principles or of auditing and reporting standards) discussed with management in connection with the initial selection as auditors, the communication of these matters to those charged with governance, and how these matters affect the overall audit strategy and audit plan.
● The planned audit procedures to obtain sufficient appropriate audit evidence regarding opening balances.
● Other procedures required by the firm's system of quality control for initial audit engagements (for example, the firm's system of quality control may require the involvement of another partner or senior individual to review the overall audit strategy prior to commencing significant audit procedures or to review reports prior to their issuance).
(AU-C 300.A20)
Matters to Consider in Developing an Audit Strategy
AU-C 300.A25 Appendix – Considerations in Establishing the Overall Audit
The appendix to AU-C 300 provides examples of matters the auditor may consider in establishing the overall audit strategy, and many of these matters also will influence the detailed audit plan. The examples provided cover a broad range of matters applicable to many engagements. Although some of the following matters may be required by other AU-C sections, not all matters are relevant to every audit engagement, and the list is not necessarily complete.
Characteristics of the Engagement
The following are some examples of characteristics of the engagement:
● The financial reporting framework on which the financial information to be audited has been prepared, including any need for reconciliations to another financial reporting framework
● Industry-specific reporting requirements, such as reports mandated by industry regulators
● The expected audit coverage, including the number and locations of components to be included
● The nature of the control relationships between a parent and its components that determine how the group is to be consolidated
● The extent to which components are audited by other auditors
● The nature of the business divisions to be audited, including the need for specialized knowledge
● The reporting currency to be used, including any need for currency translation for the audited financial information
● The need for statutory or regulatory audit requirements (for example, OMB Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations)
● The availability of the work of the internal auditor function and the extent of the auditor's potential direct use of such work
● The entity's use of service organizations and how the auditor may obtain evidence concerning the design or operation of controls performed by them
● The expected use of audit evidence obtained in previous audits (for example, audit evidence related to risk assessment procedures and tests of controls)
● The effect of IT on the audit procedures, including the availability of data and the expected use of computer-assisted audit techniques
● The coordination of the expected coverage and timing of the audit work with any reviews of interim financial information, and the effect on the audit of the information obtained during such reviews
● The availability of client personnel and data
Reporting Objectives, Timing of the Audit, and Nature of Communications
The following examples illustrate reporting objectives, timing of the audit, and nature of communications:
● The entity's timetable for reporting, including interim periods
● The organization of meetings with management and those charged with governance to discuss the nature, timing, and extent of the audit work
● The discussion with management and those charged with governance regarding the expected type and timing of reports to be issued and other communications, both written and oral, including the auditor's report, management letters, and communications to those charged with governance
● The discussion with management regarding the expected communications on the status of audit work throughout the engagement
● Communication with auditors of components regarding the expected types and timing of reports to be issued and other communications in connection with the audit of components
● The expected nature and timing of communications among engagement team members, including the nature and timing of team meetings and timing of the review of work performed
● Whether there are any other expected communications with third parties, including any statutory or contractual reporting responsibilities arising from the audit
Significant Factors, Preliminary Engagement Activities, and Knowledge Gained on Other Engagements
The following examples illustrate significant factors, preliminary engagement activities, and knowledge gained on other engagements:
● The determination of materiality, in accordance with AU-C Section 320, Materiality in Planning and Performing an Audit, and, when applicable, the following:
● The determination of materiality for components and communication thereof to component auditors in accordance with AU-C Section 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors)
●