Audit Strategy (Explained)
The auditor should establish an overall audit strategy that sets the scope, timing, and direction of the audit and guides the development of the audit plan.
In establishing the overall audit strategy, the auditor should take into account:
a. The reporting objectives of the audit engagement and the nature of the communications,
b. The factors that are significant in directing the activities of the engagement team,
c. The results of preliminary engagement activities and the auditor’s evaluation of the important matters in accordance with paragraph 7 of this standard, and
d. The nature, timing, and extent of resources necessary to perform the engagement.
Preliminary Audit Strategies
The auditor’s ultimate objective in planning and performing the audit is to reduce audit risk to an appropriately low level to support an opinion as to whether the financial statements are fairly presented in all material respects.
This is accomplished by collecting and evaluating evidence concerning the assertions contained in management’s financial statements.
Because of the interrelationships among evidence, materiality, and the components of audit risk discussed earlier, the auditor may choose from among alternative preliminary audit strategies in planning the audit of individual assertions or groups of assertions.
In developing preliminary audit strategies for assertions, the auditor specifies four components as follows:
1. The planned assessed level of control risk.
2. The extent of understanding of the internal control structure to be obtained.
3. Tests of control to be performed in assessing control risk.
4. The planned level of substantive tests to be performed to reduce audit risk to an appropriately low level.
A preliminary audit strategy is not a detailed specification of auditing procedures to be performed the in completing the audit.
Instead, it represents the auditor’s preliminary judgments about an audit approach, and is based on certain assumptions about the conduct of the audit.
