Audit engagement planning involves developing a comprehensive audit strategy to guide the engagement. Key objectives include:
- Ensuring compliance with professional standards.
- Assessing risks of material misstatement.
- Allocating resources efficiently to mitigate identified risks.
- Purpose: The audit plan outlines the nature, timing, and extent of audit procedures necessary to address identified risks.
- Components:
- Risk assessment procedures.
- Control tests and substantive tests.
- Planning begins with understanding the client’s business, industry, and financial statement assertions.
- Risk assessment identifies significant accounts and disclosures, which determine the focus of the audit procedures.
- Staffing the engagement with qualified team members, including IT auditors and specialists, is critical.
- Consideration of the client’s complexity and industry ensures the team’s skills match the engagement’s needs.
Audit planning aligns with professional standards such as those outlined by the AICPA and PCAOB. These standards emphasize the importance of:
- Proper documentation of the audit plan and procedures.
- Continuous supervision and review during the engagement.
- Adapting the plan to address significant risks or changes in client circumstances.