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Planning an Audit 273 Planning an Audit 273 AU-C Section 300 Planning an Audit Source: SAS No. 122; SAS No. 128; SAS No. 134. Effective for audits of financial statements for periods ending on or after December 15, 2012, unless otherwise indicated. Introduction Scope of This Section .01 This section addresses the auditor's responsibility to plan an audit of financial statements. This section is written in the context of recurring audits. Additional considerations in an initial audit engagement are separately identi- fied in this section. Matters related to planning audits of group financial state- ments are addressed in section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors). (Ref: par. .A1–.A3) The Role and Timing of Planning .02 Planning an audit involves establishing the overall audit strategy for the engagement and developing an audit plan. Adequate planning benefits the audit of financial statements in several ways, including the following: • Helping the auditor identify and devote appropriate attention to important areas of the audit • Helping the auditor identify and resolve potential problems on a timely basis • Helping the auditor properly organize and manage the audit en- gagement so that it is performed in an effective and efficient man- ner • Assisting in the selection of engagement team members with ap- propriate levels of capabilities and competence to respond to an- ticipated risks and allocating team member responsibilities • Facilitating the direction and supervision of engagement team members and the review of their work • Assisting, when applicable, in coordination of work done by audi- tors of components and specialists Effective Date .03 This section is effective for audits of financial statements for periods ending on or after December 15, 2012. Objective .04 The objective of the auditor is to plan the audit so that it will be per- formed in an effective manner. ©2020, AICPA AU-C §300.04 274 Risk Assessment and Response to Assessed Risks Requirements Involvement of Key Engagement Team Members .05 The engagement partner and other key members of the engagement team should be involved in planning the audit, including planning and partici- pating in the discussion among engagement team members. (Ref: par. .A4–.A5) Preliminary Engagement Activities .06 The auditor should undertake the following activities at the beginning of the current audit engagement: a. Performing procedures required by section 220, Quality Con- trol for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards, regarding the continuance of the client relationship and the specific audit engagement b. Evaluating compliance with relevant ethical requirements in ac- cordance with section 220 c. Establishing an understanding of the terms of the engagement as required by section 210, Terms of Engagement (Ref: par. .A6–.A8) Planning Activities .07 The auditor should establish an overall audit strategy that sets the scope, timing, and direction of the audit and that guides the development of the audit plan. .08 In establishing the overall audit strategy, the auditor should a. identify the characteristics of the engagement that define its scope; b. ascertain the reporting objectives of the engagement in order to plan the timing of the audit and the nature of the communications required; c. consider the factors that, in the auditor's professional judgment, are significant in directing the engagement team's efforts; d. consider the results of preliminary engagement activities and, when applicable, whether knowledge gained on other engage- ments performed by the engagement partner for the entity is rel- evant; and e. ascertain the nature, timing, and extent of resources necessary to perform the engagement. (Ref: par. .A9–.A13) .09 The auditor should develop an audit plan that includes a description of the following: a. The nature and extent of planned risk assessment procedures, as determined under section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement b. The nature, timing, and extent of planned further audit proce- dures at the relevant assertion level, as determined under section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained AU-C §300.05 ©2020, AICPA Planning an Audit 275 c. Other planned audit procedures that are required to be carried out so that the engagement complies with generally accepted au- diting standards (Ref: par. .A14) .10 The auditor should update and change the overall audit strategy and audit plan, as necessary, during the course of the audit. (Ref: par. .A17) .11 The auditor should plan the nature, timing, and extent of direction and supervision of engagement team members and the review of their work. (Ref: par. .A18–.A19) Determining the Extent of Involvement of Professionals Possessing Specialized Skills .12 The auditor should consider whether specialized skills are needed in performing the audit. If specialized skills are needed, the auditor should seek the assistance of a professional possessing such skills, who either may be on the auditor's staff or an outside professional.1 In such circumstances, the auditor should have sufficient knowledge to communicate the objectives of the other professional's work; evaluate whether the specified audit procedures will meet the auditor's objectives; and evaluate the results of the audit procedures ap- plied as they relate to the nature, timing, and extent of further planned audit procedures. Section 620, Using the Work of an Auditor's Specialist, addresses the auditor's use of the work of specialists in an audit. (Ref: par. .A20–.A21) Additional Considerations in Initial Audit Engagements .13 The auditor should undertake the following activities prior to starting an initial audit: a. Performing procedures required by section 220 b. Communicating with the predecessor auditor when there has been a change of auditors, in accordance with section 2102 (Ref: par. .A22) Documentation .14 The auditor should include in the audit documentation the following:3 a. The overall audit strategy b. The audit plan c. Any significant changes made during the audit engagement tothe overall audit strategy or the audit plan and the reasons for such changes (Ref: par. .A23–.A26) Application and Other Explanatory Material The Role and Timing of Planning (Ref: par. .01) .A1 The nature and extent of planning activities will vary according to the size and complexity of the entity, the key engagement team members' previous 1 Paragraph .16 of section 220, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards. 2 Paragraph .11 of section 210, Terms of Engagement. 3 Paragraphs .08–.12 and .A8 of section 230, Audit Documentation. ©2020, AICPA AU-C §300.A1 276 Risk Assessment and Response to Assessed Risks experience with the entity, and changes in circumstances that occur during the audit engagement. .A2 Planning is not a discrete phase of an audit but rather a continual and iterative process that often begins shortly after (or in connection with) the com- pletion of the previous audit and continues until the completion of the current audit engagement. Planning, however, includes consideration of the timing of certain activities and audit procedures that need to be completed prior to the performance of further audit procedures. For example, planning includes the need to consider, prior to the auditor's identification and assessment of the risks of material misstatement, such matters as the following: • The analytical procedures to be applied as risk assessment proce- dures • A general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework • The determination of materiality • The involvement of specialists • The performance of other risk assessment procedures .A3 The auditor may decide to discuss elements of planning with the en- tity's management to facilitate the conduct and management of the audit en- gagement (for example, to coordinate some of the planned audit procedures with the work of the entity's personnel). Although these discussions often oc- cur, the overall audit strategy and the audit plan remain the auditor's responsi- bility. When discussing matters included in the overall audit strategy or audit plan, care is required in order not to compromise the effectiveness of the au- dit. For example, discussing the nature and timing of detailed audit procedures with management may compromise the effectiveness of the audit by making the audit procedures too predictable. Involvement of Key Engagement Team Members (Ref: par. .05) .A4 The involvement of the engagement partner and other key members of the engagement team in planning the audit draws on their experience and insight, thereby enhancing the effectiveness and efficiency of the planning pro- cess. The engagement partner may delegate portions of the planning and su- pervision of the audit to other firm personnel. .A5 Section 315 requires a discussion among the audit team about the sus- ceptibility of the entity's financial statements to material misstatement.4 This discussion also may include the discussion regarding the risks of material mis- statement due to fraud, as required by section 240, Consideration of Fraud in a Financial Statement Audit.5 The objective of this discussion is for members of the audit team to gain a better understanding of the potential
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