Question

Describe how the auditor develops an audit strategy and an audit plan to respond to the assessed risk of material misstatement.

Answer 1

An audit strategy sets out in general terms how the audit need to be conducted and it's timing, scope, and direction of the audit. Also guides the audit development plan, which includes the detailed responses to the auditor’s risk assessment. An auditor is required to consider below mentioned specific issues when establishing the audit strategy, and give a list of typical matters to be considered in the appendix.

-- Identification of the characteristics of the engagement that define the audit scope

--Ascertainment of the objective of reporting in regard to engagement plan the timing of the audit and the nature of the communications needed

--Consideration of the factors that are important in directing the efforts of audit team’s in the auditor’s professional judgment

--Consideration of the preliminary engagement activities results and knowledge obtained on other engagements

--Ascertain the timing, nature, and extent of resources required to fulfil the engagement

After the establishment of the overall audit strategy, an audit plan can be developed to address several matters identified in the overall audit strategy, taking in to consideration the requirement to achieve the audit goals through the efficient use of the auditor’s resources. An audit plan should describe:

--the timing, nature, and extent of planned procedures for risk assessment

--the timing, nature, and extent of planned further audit procedures at the assertion level

-- other planned audit procedures which is needed to be carried out for the engagement complies with ISAs