The audit strategy memorandum is a document that outlines the overall audit approach for an engagement. It serves as the foundation for the audit plan, ensuring that auditors follow generally accepted auditing standards (GAAS) and that significant risks are properly addressed.
This memorandum helps auditors:
Set the scope, timing, and direction of the audit.
Determine the nature, timing, and extent of audit procedures.
Allocate resources and assign responsibilities within the audit team.
Document how risks (e.g., fraud, noncompliance, and significant misstatements) will be addressed.
The memorandum includes:
Identification of significant accounts and disclosures.
Evaluation of risks at both financial statement and assertion levels.
Planned tests of controls and substantive procedures.
Special considerations for fraud risks and legal compliance.
Inclusion of fraud specialists, IT auditors, or legal experts if necessary.
Coordination with internal auditors and external specialists.
Consideration of SEC, PCAOB, or other regulatory guidelines for required communications.
The audit strategy memorandum serves as the guiding framework for executing the audit efficiently and ensuring all critical risks are covered.