PLANNING

PHASE II OF THE AUDIT

PROCESS MODEL
 PLANNING
• International Standards on Auditing (ISA) 300,
“Planning,” states, 1 “The auditor should plan
the audit work so that the audit will be
performed in an effective manner.
• Planning means developing a general strategy
and a detailed approach for the expected
nature, timing and extent of the audit.”
 Planning Objective and Procedures
The objective of planning is to determine the amount and
type of evidence and review required to assure the auditor
that there is no material misstatement of the financial
statements.
The planning procedures are:
1. Perform audit procedures to understand the entity and its
environment, including the entity’s internal control.
2. Assess the risks of material misstatements of the financial
statements.
3. Determine materiality.
4. Prepare the planning memorandum and audit programme
containing the auditor’s response to the identified risks
 Planning an audit programme
The audit planning process should include
procedures to:
• acquire an understanding of the entity and its
environment by reviewing financial (e.g. going
concern, analytical procedures) and non-financial
(e.g. industry, company, legal, related party,
statutory) information;
• understand the accounting and internal control
systems; and assess risk and materiality
 Planning an audit programme
Other issues such as the nature and timing of
the engagement, involvement of other auditors,
involvement of experts, staffing requirements,
and reports usually receive preliminary
attention at the client acceptance phase (Phase
I)
 Understanding of the entity and its environment

• Procedures to Obtain an Understanding

• Audit Team Discussion
• Continuing Client
• Industry, Regulatory And Other External Factors
• Nature of the entity
• The Entity’s Objectives, Strategies and Related Business
Risks
• Strategic Framework
• Measurement and Review of the Entity’s Financial
Performance
• Internal Control
 Understanding of the entity and its environment

Procedures to Obtain an Understanding

ISA 315 provides an overview of the procedures
that the auditor should follow in order to obtain an
understanding sufficient to assess the risks and
consider these risks in designing the audit plans.
The risk assessment procedures should, at a
minimum, be a combination of the following:
• Inquiries of management and others within the
entity
• Analytical procedures
• Observation and inspection.
 Understanding of the entity and its environment

ISA 315 distinguishes the following relevant aspects in the

understanding of the entity and its environment:
• industry, regulatory and other external factors,
including the applicable financial reporting framework;
• nature of the entity, including the entity’s selection and
application of accounting policies;
• objectives and strategies, and the related business risks
that may result in a material misstatement of the
financial statements;
• measurement and review of the entity’s financial
performance;
• internal control
 Based on the Evidence, Assess Risk;
Types of Risk
The Risk Assessment Process
Business Risk, Audit Risk and its Components
Significant Risks
 Planning Materiality
The auditor’s responsibility is to express an opinion on
whether the financial statements are prepared, in all
material respects, in accordance with financial accounting
standards. Materiality is the degree of inaccuracy or
imprecision that is still considered acceptable given the
purpose of the financial statements.
• Materiality Level
• Size of the Item
• Nature of the Item
• Circumstances of Occurrence
• Reliability, Precision and Amount of Evidence