g) Current year budgets and management accounts: Provides relevant financial information for

the year to date. It will help the auditor during the planning stage for preliminary analytical
review and risk identification.
h) Milky Way’s website: Recent press releases from the company may provide background on
the business during the year as this will help in identifying the key audit risks.
i) Financial statements of competitors: This will provide information about Milky Way’s
competitors, in relation to their financial results and their accounting policies. This will be
important in assessing Milky Way’s performance in the year and also when undertaking the
going concern review.

21. During the planning process, the auditor will develop an audit strategy and also produce a
detailed audit plan. They will also make an assessment of the level of materiality to be used
during the audit. State the purpose of the 'audit strategy' and describe the areas that would be
covered by the audit strategy.

The purpose of the audit strategy is to set the overall scope, timing and direction of the audit. Matters
that would be considered in establishing an overall audit strategy include:

a) Characteristics of the engagement:

– The entity's applicable financial reporting framework
– Any industry‐specific reporting requirements
– The nature of the business
– Availability of the client's data and staff (including internal audit)
– The potential for using Computer Assisted Audit Techniques
b) Reporting objectives, timing of the audit and nature of communications.
c) Knowledge gained from previous audits and during the preliminary risk assessment.
d) Nature, timing and extent of resources in terms of using appropriate personnel.

22. Explain what an 'audit plan' is and give examples of items that would ordinarily be included in the
audit plan.

The auditor will take the overall audit strategy and convert it into a more detailed audit plan. The plan
includes the nature, timing and extent of audit procedures to be performed by engagement team
members in order to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably
low level. Examples of items included in the audit plan could be:
 A timetable of planned audit work
 Details of the allocation of work to audit team members
 Audit procedures for each major account area (e.g. inventory, receivables, cash etc)
 Materiality for the financial statements as a whole and performance materiality