II.

AUDIT PLANNING DOCUMENT

Name of Client: Prepared by: Date:

Closing Date: Reviewed by: Date:

1 Audit Scope, Acceptance/Continuance & Independence

1.1 Audit Scope

Describe the scope of the

audit
1.2 Results from Client
Acceptance/Continuance
Procedures and
Independence Review
Describe the results from
the client acceptance and
continuance procedures and
the independence review.
Example
We have completed our client acceptance/continuance procedures and
have not identified any issues, which would indicate that we should not
accept the audit/continue as the auditors to the company.
We are satisfied that there are no issues connected to the
owners/managers or matters related to the business which would indicate
that the company would not be a suitable client.

We have also completed our independence review and are satisfied that
there are no relationships either personal or professional in nature, which
would affect our objectivity and independence while completing our duties
as auditor.

2 Understanding the business

2.1 Understand the Nature of the Entity

Identify key factors underlying the nature of the entity. Indicate how they influence management’s
actions and consider potential business and financial statement risks that may arise from them.
Inherent Risk Factors Accounts & Assertions affected

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Examples of factors to consider:

Legal Form of the Business & Ownership

Principal Activities, Main Products and Services
Locations, facilities, plant & equipment
Manufacturing process and sales/distribution methods
Employees and unionization
2.2 Understand Key Market Forces and Other Key Environmental Factors

Identify key market forces and other key environmental factors. Indicate how they influence
management’s actions and consider potential business and financial statement risks that may arise from
them.
Inherent Risk Factors Accounts & Assertions affected

Examples of factors to consider:

General Economic Trends/Regional and Local Economic Conditions

Significant Trends in the Industry/Key Competitors and Competitive Issues
Key Suppliers/Vendor Relationships
Key Customers/Market Position
Sources of Financing/Credit Availability
Legal and Regulatory Requirements Affecting the Business
Accounting Practices and Reporting Obligations Affecting the Business
Taxation Matters Affecting the Business
Technological Advances Affecting the Business
Social, Economic and Political Factors Affecting the Business
2.3 Understand How the Expectations of Key Stakeholders Influence Management’s Actions

Identify key stakeholder expectations. Indicate how they influence management’s actions and consider
potential business and financial statement risks that may arise from them.
Inherent Risk Factors Accounts & Assertions affected

Examples of factors to consider:

Key client Personnel

Equity Based Arrangements/ Bonus or Profit Sharing Plans
2.4 Understand the Business Strategies and Objectives

Identify key business strategies and objectives. Indicate how they influence management’s actions and
consider potential business and financial statement risks that may arise from them.
Inherent Risk Factors Accounts & Assertions affected

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Examples of factors to consider:

Sources of customer satisfaction (customer perspective)

Effectiveness and efficiency of its business processes (internal perspective)
Improvement and innovation achievements (innovation and learning perspective)
Drivers of Value for Shareholders (financial perspective)
Needs of regulators (regulatory and compliance perspective)
2.5 Understand How Management Measures and Reviews Financial Performance

Identify how management measures and reviews financial performance. Indicate how this influences
management’s actions and consider potential business and financial statement risks that may arise.
Inherent Risk Factors Accounts & Assertions affected

Examples of factors to consider:

Inquire of management regarding the financial performance measures they monitor or other areas which
are of emphasis.
Consider the effect on management’s measures that may arise from our understanding of key
stakeholders’ expectations/needs.
Gain an understanding of how management uses financial performance measures, including follow up
actions where measures fall outside an acceptable range.
Relate the key performance measures and other areas of emphasis by management to financial statement
accounts and disclosures.
2.5 Going concern

1) Make a preliminary determination as to whether events or conditions exist that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going concern and if so,
management’s plans to address them.

• INSPECT and/or make INQUIRIES with respect to management’s preliminary assessment of the
entity’s ability to continue as a going concern and management’s intended use of the going
concern assumption.

• INQUIRE of management as to its knowledge of events or conditions beyond the period of

management’s assessment that may cast significant doubt on the entity’s ability to continue as a
going concern.

Descriptions
2) Describe events or conditions that, individually
or collectively, may cast significant doubt on the
entity’s ability to continue as a going concern and
determine their effect on our planned audit
approach for specific account balances, classes of
transaction or disclosures:

3) If events or conditions have been identified

which cast doubt over the entity’s ability to
continue as a going concern, INQUIRE of
management what plans it has made to address
them. Determine whether additional management
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assessments or plans are required. Describe your
preliminary conclusions below:

Please record above the name of the person/s with whom we held our discussions.

3 Observations from Preliminary Analytical Review

Populate the table below with the client’s draft accounts, describe the causes of any significant variances
and indicate which matters require an audit response. Insert additional account balances when
appropriate.
Account balance Current year Prior year Variance Variance
PhP PhP PhP %

Fixed assets
Inventory
Trade receivables
Prepayments
Cash and cash equivalents
Trade payables
Accruals
Long term debt
Share capital
Retained earnings
Sales
Cost of sales
Gross profit
Wages and salaries
Administrative costs
Finance costs
Profit/loss for year
For each significant movement provide detail of the causes of the movement. Indicate any matters
requiring follow up during the audit.

4 Consider the Risk of Fraud

4.1 Assess Fraud Risks

Identify key fraud risks. Indicate how they influence management’s actions and consider potential
business and financial statement risks that may arise from them.
Inherent Risk Factors Accounts & Assertions affected
Revenue recognition All material revenue accounts
Inappropriate journal entries and other adjustments All material accounts
Management bias in accounting estimates All material estimates
Significant / unusual transactions to misstate All material accounts

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 II.a
accounts

Examples of factors to consider:

Whether owner/managers or employees have any incentive or reason to commit fraud (financial
pressures)
Whether circumstances exist which provide an opportunity for fraud to be perpetrated (lack of proper
accounting records, lack of adequate accounting procedures, nature of the business).
Whether the character and attitudes of owner/managers would allow them to rationalize committing
fraud.
Risks of misappropriation of business assets (adequacy of owner/manager controls, nature of assets,
incidence of petty theft)
Risks of fraud in improper revenue recognition (recording cash sales, sources of business income, un-
invoiced sales, income recognition methods, for example, in construction industry)
Risks of owner/managers overriding controls (inappropriate journal entries or other adjustments to
accounting records, significant and unusual transactions entered into with the intention of misstating the
accounts, intentional bias in accounting estimates, for example, stock and debtor provisions, estimates of
liabilities)
4.2 Discussions with Those Likely to Have Knowledge of Fraud

Discuss with those charged with governance of the entity, including owner/managers, and others within
entity (for example, accounting staff) any actual, suspected or alleged fraud and actions taken, and any
fraud risks and steps taken to mitigate these risks. Document discussions in notes or minutes and
summarize results below.

5 Assessment of Accounting Risks

5.1 Consider Impact of Control Environment on the Audit

Describe any weaknesses in significant accounting processes and related controls impacting the audit
strategy. Consider the implications for the design of substantive audit procedures.
Inherent Risk Factors Accounts & Assertions affected

Examples of factors to consider:

Key staff absent

Purchase orders not properly authorised
5.2 Assess Accounting Risks

Describe any accounting risks impacting the audit strategy. Consider the implications for the design of
substantive audit procedures.
Inherent Risk Factors Accounts & Assertions affected

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Examples of factors to consider:

Appropriateness of the accounting principles and practices adopted by the client

Affect of identified fraud and business risks on the financial statements
Affect of any identified weaknesses in accounting systems and controls on the financial statements
Adequacy of any accounting estimates
Existence of any significant or unusual transactions
Any significant and unusual journal entries or adjustments to the accounting records
Any revenue recognition issues

6 Risk Assessment

Complete the risk assessment below based on evidence gathered in the above sections.
High Low
On the basis of the business risks documented above, business risk is
assessed as:

On the basis of the fraud risk factors documented above, fraud risk is
assessed as:

On the basis of the accounting risks documented above, accounting risk is

assessed as:

Based on the above consideration of business risk, fraud risk and accounting
risk, the overall audit risk is assessed as:

7 Planning materiality

Planning materiality is used to guide the extent of audit procedures performed. Insert national planning
materiality calculation below:

8 Audit Strategy

8.1 Risk Materiality Analysis

Determine whether balances are material and if so, whether they are high or low risk. Document the
reason for the risk assessment and detail any assertions effected. Insert additional account balances when
appropriate.
Amount Materia HRM LR Reason for risk assessment and assertions
l M effected
PhP Y/N Y/N Y/N
Fixed assets
Inventory
Trade receivables
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Prepayments
Cash
Trade payables
Accruals
Long term debt
Share capital
Retained
earnings
Sales
Cost of sales
Gross profit
Wages and
salaries
Administrative
costs
Finance costs
Profit/loss for
year
8.2 High Risk Material Balances

For all HRM balances, document any mitigating controls (e.g., active involvement of the owner-
manager). Consider the adequacy of owner/manager controls to mitigate identified risks. Perform walk-
through tests to confirm implementation of controls. Where controls have not been implemented or are
not considered adequate to mitigate the risk, this must be reported to the owner/managers.

Indicate any modifications needed to the nature, timing or extent of our planned audit procedures to
address identified risks, below:
Accounts and Inherent risk / Fraud risk Mitigating controls Effect on Audit
assertions effected Strategy
[Engagement team to Incorrect revenue [Engagement team to [Engagement team to
document specific recognition document] document]
revenue assertions
affected]
[Engagement team to Management override of None [Complete
document accounts and controls management override
assertion affected] of controls audit
program.]

Significant Controls Audit response Workpaper

risks ref.

Incorrect
revenue
recognition

Document the
reasons
supporting our
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conclusion
when we have
not identified
improper
revenue
recognition as a
fraud risk
[Significant risk
2]

9 Management Letter Points Noted from Planning

Document below the deficiencies identified with the accounting systems during at the planning stage of
the audit, for inclusion in the management letter.

Issue Risk Recommendation

10 Budget and fees

Attach a copy of the engagement budget and fee details.

I confirm that this audit has been properly planned; I have reviewed the planning document above and
approve the audit strategy for this audit.

Signed and dated:

Engagement Manager: Date:

Engagement Partner: Date:

Engagement Quality Date:

Control Reviewer
(where required):

Audit Planning Document