AUDIT PLANNING

“If you go to work on your goals, your goals will go to work on you.
If you got to work on your plan, your plan will go to work on you.
Whatever good things we build up end up building us. – Jim Rohn
PSA 300 (Redrafted)

“The objective of the auditor is to plan the

audit so that it will be performed in an
effective manner.”
- (PSA 300 (Redrafted) par. 3)
Output of the planning stage
 The overall audit strategy
 The overall audit plan
 The draft audit programs detailing the
work to be done
Major Audit Planning Activities
1. Obtaining an understanding of the client and
its environment
2. Determining the need for experts
3. Establishing materiality and assessing risk
4. Assessing the possibility of non-compliance
5. Identifying related parties
6. Performing preliminary analytical procedures
7. Development of the overall audit strategy and
detailed audit plan
8. Preparation of preliminary audit programs
Obtaining an Understanding of the
Entity and Its Environment

Risk Assessment Procedures

1. Inquiry
2. Observation and inspection
3. Analytical procedures
Obtaining an Understanding of the
Entity and Its Environment
Aspects of the Auditor’s Understanding of the
Entity and Its Environment
1. Industry, regulatory, and other external factors,
including the applicable financial reporting framework
2. Nature of the entity, including the entity’s selection
and application of accounting policies
3. Objectives and strategies and the related business
risks in a material misstatement of the FS
4. Measurement and review of the entity’s financial
performance
5. Internal control
Assessing the Possibility of Non-
Compliance

 Non-compliance
- refers to acts of omission or
commission by the entity, either
intentional or unintentional, which are
contrary to the prevailing laws or
regulations
Assessing the Possibility of Non-
Compliance
Procedures for Obtaining a General Understanding of the
Legal and Regulatory Framework
1. Use the existing understanding of the entity’s industry,
regulations and other external factors
2. Inquire regarding the entity’s policies and procedures
regarding compliance with laws and regulations
3. Inquire about the laws or regulations that may be
expected to have a fundamental effect of the
operations of the entity
4. Discuss with management the policies and procedures
regarding litigation claims and assessments
5. Discuss the legal and regulatory framework with
auditors of subsidiaries in other countries
Perform Analytical Review
Procedures

The basic premise underlying analytical

procedures is that relationships among data
may reasonably be expected to exist and to
continue to exist in the absence of known
conditions to the contrary.
Perform Analytical Review
Procedures
 Trend Analysis
 Ratio Analysis
 Comparison of financial information with
anticipated results (budgets and forecasts)
The Overall Audit Strategy
- Set the scope, timing, and direction of the
audit
- Guides the development of a more
detailed audit plan
Scope of an Audit Engagement
1. The financial reporting framework
2. Industry-specific reporting requirements
3. Expected audit coverage (number and location of
components)
4. The nature of control relationships between a parent
and its subsidiaries
5. The extent to which components are audited by other
auditors
6. The nature of the business segments
7. The reporting currency to be used
8. The need for a statutory audit of standalone FS in
addition to an audit for consolidation purposes
9. The availability of the work of internal auditors and the
auditor’s potential reliance on such work
Scope of an Audit Engagement –
continued
10. The entity’s use of service organizations
11. The expected use of audit evidence obtained in prior
audits
12. The effect of IT in audit procedures and the expected
use of CAATs
13. The availability of client personnel and data
Timing of an Audit
1. The entity’s timetable for reporting
2. The organization of meetings to discuss the
nature, extent, and timing of the audit
3. The discussion regarding the expected type
and timing of reports to be issued
4. Communication with auditors of components
5. The expected nature and timing of
communications among team members
6. Any other expected communications with
third-parties including statutory or
contractual reporting respnsibilities
Direction of the Audit
1. Setting, communicating, reconsidering materiality
2. Areas with higher risks of material misstatements
3. Selection of the engagement team
4. Engagement budgeting
5. Emphasis on professional skepticism in evidence -
gathering
6. Results of previous audits
7. Evidence of management’s commitment to a sound
internal control system
8. Volume of transactions
9. Significant business and industry developments
Direction of the Audit
10. Significant changes in the financial reporting
framework
11. Other relevant developments
Significant dates
1. Physical inventory count
2. Confirmation of receivables
3. Commencement of field work
4. Submission of required schedules and analyses
5. Workpaper and data consolidation
6. Closing conference
7. Submission of auditor’s report
8. Issuance of special report if any
9. Availability of FS for BOD meeting
10. Filing of FS/returns with BIR, SEC and other agencies