SA 300: Planning an Audit of Financial Statements:

 

An auditor being a person responsible to verify and scrutinize the information and report thereupon as to its truthfulness to various stakeholders, is obliged by stringent guidance notes and pre-defined procedures/systems, so as to discharge their duty. Thus, they have to make sure that any engagement that they are taking up as a professional be it involving auditing or simply assurance, be must executed in line with the standards set out by relevant regulatory body. We shall here take a brief understanding of one such standard i.e. ‘SA-300 Planning an Audit of Financial Statements’, laying down roadmap on procedures to be undertaken and aspect to be specially paid attention to post accepting any fresh audit engagement, however before initiating the engagement.

Topics covered in this article:

·       Scope & Objective

·       Human Resource Planning

·       Preliminary Engagement activities

·       Aspects to be taken care-off while Planning

·       Documentation-maintaining records

·       Other matters

Scope & Objective

Auditor is expected to pre-plan the entire audit engagement and discuss the same the auditee management so as to ease down the execution of same. For this purpose, this standard on auditing lays down the guidance criteria so as to precisely plan the engagement. The SA states that the nature and extent of planning be varied depending upon the size and complexity of entity, experience possessed by key engagement team members for like engagement, alteration in circumstances and base parameters relating to engagement and so on. However, planning being a continual and not discrete phase of any engagement, will continue over period of time, till association with individual entity continues and would shortly be re-visited post conclusion of each periodic engagement.

Planning however is rough in a manner that as part of planning engagement partner would only list down procedures to be conducted and other important aspects to be focused upon. It is strategy-making, that be done after planning stage, that helps in chronologically setting out the line of activities.

Human Resource Planning

It is very crucial, that before getting started with the planning phase, the engagement partner and the members of team be identified. The reason to set-up engagement team at this very stage is that once the whole team is picked, keeping in view the required exposure, understanding of subject matter on hand, experience held, now these team members along with engagement partner be made a part of whole planning stage, thus allowing them as well to share their valuable insights, that could be assistive to streamline the execution.

Preliminary Engagement activities

At time of starting with any new audit engagement, auditor shall undertake all below activities in line with other standards as prescribed in regards to relevant matters:

-        Make sure all ethical requirements as prescribed under Code of Ethics set out regulatory body are being complied with;

-        The 5 basic fundamentals to be taken care off at time of accepting any engagement are: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour. The main focal point of these fundamentals is independence, both in terms of appearance and mind. It must be made sure that none of the engagement team member or that of engagement partner, is holding any interest with the said entity, on personal or other grounds, such that could influence the professional acumen to such an extent that could lead to compromising quality of work;

-        Obtain thorough understanding of client entity such as its nature of business and complexity involved therewith, size of business, key management persons of said entity and past track record of entity as well as the top management. Also, while analyzing the client entity, engagement partner should make sure the team constituted includes members with diversified exposure and expertise, as required depending upon the engagement;

-        Furthermore, when any new engagement is accepted with new/existing client the terms of engagement covering aspects such as scope of work, assistance/information required from client, deadline by when engagement be expected to be concluded. Also, when renewing any engagement with existing client over extended period of time, then also the earlier agreed terms of engagement be taken look at, and if found necessary then same be updated accordingly.

Aspects to be taken care-off while Planning

Auditor/engagement partner shall not only draft a preliminary plan of engagement but also strategize the steps, time required, resources to be deployed, areas to be focused upon and time by which engagement be expected to be completed.

So as to frame strategy covering all aspects as referred above, auditor should undertake all below steps:

 

-        Identify the characteristics/features of engagement to be undertaken;

-        Obtain the understanding of end results or objective for which said audit engagement is to be performed, so as to determine the timeline of completion;

-        Also, identify the crucial aspects of engagement to be focused over so as precisely conclude the engagement;

-        Further, based on preliminary understanding and results obtained from other procedures, auditor shall accurately divide engagement into several focus areas and depending on expertise of each team member assign respective area. Also, based on understanding obtained from aforementioned procedures, the time to be dedicated by each team member over assigned area of work;

-        In addition to this, based on various procedures performed at time of accepting an engagement, the auditor shall detect the estimated level of risk. Based on estimated level of risks existent, auditor shall determine and execute several procedures to curb down risk existing and prevent the same from reoccurrence.

Documentation-maintaining records

The auditor is supposed to documenting all below aspects in regards to aforementioned audit planning:

-        The audit plan as is finalized and confirmed with client;

-        The audit strategy as is drafted to execute the audit engagement;

-        The changes as have been incorporated to original plan/strategy, depending upon changes in the circumstances/facts relied over to draft the said original plan/strategy.

Other matters

Before accepting any new/fresh audit engagement, auditor shall make sure to have communicated with the previous auditor that the said engagement with regards to concerned auditee has been taken up by the current auditor. Current auditor, shall communicate said fact to previous auditor in such a manner that due confirmation from previous auditor is rightfully obtained. Also, the current auditor is to keep proper record of fact that he has precisely communicated fact of taking up said engagement with previous auditor, so that in case no confirmation is timely received from later then also, post expiry of minimal notice period as mentioned in no objection letter sent to previous auditor, the former (current auditor) can take up the proposed engagement.