The overall audit strategy
Summary
TLDRThis video explains the concept of an overall audit strategy, a crucial part of the planning stage in auditing. After understanding the entity and its environment and performing risk assessments, auditors develop this strategy to outline the audit's scope, timing, and focus areas. The video uses a vacation planning analogy to illustrate these components, emphasizing the importance of considering factors like client specifics, regulatory requirements, and operational locations. It advises learners to practice identifying focus areas through self-assessment and peer review for better understanding and preparation.
Takeaways
- 📈 The overall audit strategy is developed after the auditor understands the entity and its environment, and after performing risk assessment procedures and calculating materiality.
- 🗓️ The strategy includes planning the scope, timing, and direction of the audit, similar to planning a vacation where you decide what to do, when to go, and what to focus on.
- 🎯 The scope of the audit strategy involves identifying the range of activities to be performed, which can be influenced by factors such as the client's industry and regulatory environment.
- ⏰ Timing considerations for the audit strategy may include tight deadline constraints, the client's operational locations, and the need for third-party meetings.
- 🔍 The direction of the audit strategy is about determining focus areas, such as going concern issues or potential misstatements in financial reporting based on risk assessments.
- 🛠️ The audit strategy is part of the auditor's response to risk and provides a preliminary idea of how and when the audit will be executed, including resource requirements.
- 🏢 If the audit client is listed on a stock exchange like the JSE, the auditor must be familiar with relevant regulations, which affects the audit strategy.
- 💻 The use of automated systems by the audit client can influence the auditor's decision to use technology-assisted audit techniques (GATS).
- 🔑 The auditor must consider the opening balances and additional audit procedures if there are significant changes in the client's operations or industry.
- 👥 The involvement of third parties can affect the timing of the audit, as the auditor may need to coordinate meetings and gather information from external sources.
- 📝 It's important for the auditor to document and justify the timing and direction of the audit, not just stating general timeframes like 'before or after year-end'.
Q & A
What is the purpose of developing an overall audit strategy?
-The overall audit strategy is developed to give a preliminary idea of how and when the audit will be executed, including what resources will be required to perform the audit.
What are the three main components of the overall audit strategy?
-The three main components of the overall audit strategy are scope, timing, and direction.
How does the scope of an audit strategy influence the audit process?
-The scope of an audit strategy includes a range of activities to be performed and affects the audit process by determining the target areas for the auditor to focus on.
What factors might affect the timing of an audit?
-Factors that might affect the timing of an audit include tight order deadlines, the client operating from several locations, and the involvement of third parties.
Why is it important for an auditor to consider the client's systems when planning the audit strategy?
-If the client's systems are automated, the auditor can decide to use audit procedures like Generalized Audit Software (GATS), which can influence the planning and execution of the audit.
How does the auditor's understanding of the entity and its environment contribute to the overall audit strategy?
-The auditor's understanding of the entity and its environment is crucial for developing the overall audit strategy as it helps in assessing the risks and determining the necessary audit procedures.
What is the significance of materiality in the context of the overall audit strategy?
-Materiality is significant as it influences the auditor's decisions regarding the extent of audit procedures and the allocation of audit resources.
Can you provide an example of how the audit strategy might differ for a client listed on the JSE?
-For a client listed on the JSE, the auditor has to be familiar with JSE regulations, which may require additional audit procedures and affect the overall audit strategy.
What is meant by the 'direction' in the audit strategy, and why is it important?
-The 'direction' in the audit strategy refers to the focus areas that the auditor needs to direct their attention to, which is important for ensuring that key risk areas are adequately addressed during the audit.
How should an auditor respond to identified going concern issues during the risk assessment procedures?
-If going concern issues are identified during risk assessment, the auditor should include a risk evaluation of going concern in their focus areas as part of the overall audit strategy.
What is the role of self-assessment questions in understanding the overall audit strategy?
-Self-assessment questions help in testing and reinforcing the understanding of the overall audit strategy by allowing the auditor to apply the concepts learned to practical scenarios.
Outlines
📈 Understanding the Overall Audit Strategy
This paragraph introduces the concept of the overall audit strategy, which is a part of the planning stage in auditing. It is developed after the auditor has gained insight into the entity and its environment and performed risk assessment procedures. The strategy is a response to risk and provides a preliminary roadmap for the execution of the audit, including the timing, resources, and focus areas. The analogy of planning a vacation is used to explain the components of the strategy: scope (the bigger picture or target areas), timing (when the audit will take place), and direction (focus areas during the audit). Practical examples are given to illustrate how different client scenarios can affect the audit strategy, such as assessing opening balances for new clients or adhering to JSE regulations for listed clients. The paragraph emphasizes the importance of these considerations for the auditor.
📝 Practical Application and Learning Process
The second paragraph discusses the practical application of the audit strategy concepts through self-assessment questions. It suggests that learners should test their understanding by working through these questions and then marking their answers, possibly with a study partner to simulate a real-world review process. The paragraph encourages continuous learning by adding new insights and examples to the study material, which will aid in the revision process. The speaker wishes the viewers good luck and thanks them for watching the video, highlighting the importance of the learning process in mastering audit strategy concepts.
Mindmap
Keywords
💡Overall Audit Strategy
💡Risk Assessment Procedures
💡Materiality
💡Scope
💡Timing
💡Direction
💡Audit Procedures
💡JSE Regulations
💡Automated Systems
💡Going Concern
💡Mock Answer
Highlights
The overall audit strategy is a crucial part of the planning stage in auditing.
The strategy is developed after understanding the entity and its environment, and performing risk assessments.
Materiality calculation is a prerequisite for developing the overall audit strategy.
The strategy aims to provide a preliminary idea of how and when the audit will be executed.
Resources required for the audit are considered in the overall audit strategy.
The strategy is compared to planning a vacation for a better understanding of its components.
Scope, timing, and direction are the three main components of the audit strategy.
Scope includes the range of activities to be performed during the audit.
Timing refers to the schedule of when the audit procedures will take place.
Direction is about the focus areas that require the auditor's attention.
Practical examples are given to illustrate the application of the audit strategy components.
The audit strategy affects the procedures performed on opening balances.
Regulatory requirements, such as JSE regulations, influence the audit strategy for listed clients.
The use of automated systems by the client can impact the auditor's decision on audit procedures.
Tight order deadlines can necessitate early verification or pre-year-end audit procedures.
The client's multiple locations can influence the timing of inventory account audits.
Third-party involvement may affect the scheduling of audit meetings.
Focus areas in the audit direction might include going concern issues or director bonuses based on profits.
It's important to identify specific focus areas during the audit based on risk assessments.
The overall audit strategy does not require listing specific audit procedures, but rather the focus areas.
Self-assessment questions and peer review are recommended for testing and refining understanding of audit strategies.
The video concludes with encouragement to practice and learn from self-assessment and peer review.
Transcripts
welcome and thank you for watching this
video today I am going to explain a few
important concepts regarding the overall
audit strategy the overall audit
strategy forms part of the planning
stage of the audit after the auditor has
obtained a better understanding of the
entity and its environment and while or
after he or she performed the necessary
risk assessment procedures and
calculated materiality the auditor vault
developed the overall audit strategy the
overall audit strategy is part of the
auditors responses to risk and is
compiled to give a preliminary idea of
how and when the audit will be executed
including what resources will be
required to perform the audit to get a
better idea of what the order strategy
entails we can compare it with planning
a vacation first you need to have an
idea a bigger picture of what you want
to do what are you going to do for
example or you're going to the bush
veldt
or maybe to the coast in order to in
terms this is the scope then you need to
decide when are you going on vacation in
order to in terms this is the timing of
the audit and then lastly you need to
decide what your focus areas what
specifically need what do you want to do
do you just want to lie on the beach or
do you perhaps also do want to do
shopping in auditing we would refer to
this as a direction to be followed
during the audit so as we mentioned the
audit strategy consists of different
components which is also the big picture
so firstly you have the scope and there
it includes a range of activities to be
performed you can think of it as your
target areas then the timing is when
will the audit take place and lastly the
direction is the focus or areas that the
auditor needs to attain the to to direct
his attention to so what does this mean
we have to look at it practically and
here we have included a few examples for
you so for example in terms of scope
in terms of your range of activities
that you need to perform you need to
decide as in order to assess in your
audit client this will definitely affect
your audit strategy as you have to do
more audit procedures on the opening
balances the same with if your client is
listed on the JSE you as an auditor have
to be familiar with some of the JSE
regulations then also is the audit
client systems automated if yes then you
as an auditor can make a decision to do
your audit procedures using GATS and so
you can go through each of these
examples remember this is not a complete
list and as you work through your study
material you will be able to add to this
list just remember that these are
concepts that's important for you to
consider so if we look at the timing
this is bring your audits going to take
place and there are feel things that can
affect this for example is there tight
order deadlines if they are then you
need to decide or you're going to do
some of the order procedures before year
end just with a few adhere in all you're
going to do early verification what are
you going to do with a tight order
deadline also if your client operates
from several locations it might
influence the timing of your inventory
accounts so you need to plan for that
and also of these third parties involved
you might have to make sure that the
meetings are arranged honestly so it's
very very important to explain when the
audit will take place so you can't just
say before or after year in and so on
you need to substantiate your own Sam
and then last years in terms of the
direction of the audit you need to
decide what will the focus areas be for
example if you identified that the or
decline has going concern issues in the
red during your risk assessment
procedures you need to have you need to
do a risk evaluation going concern
evaluation also if you identify that
some of the directors are getting
bonuses based on profits there might be
a misstatement or overstatement of
profit and that's something that you
suppose for sure need to focus on
there are many many more examples that I
can think of but the only way for you to
identify them is to work through
questions so add new ones to this list
as you go through the study material and
remember for this section it's not
important to list the specific audit
procedures you just need to explain to
us what is your focus or areas during
the audit so now to conclude hopefully
you have a better understanding of this
topic so you firstly go and test this by
working out some of the self-assessment
questions then afterwards you need to
mark your answer you can also switch
with a buddy so that your she can mock
your answer and vice-versa
that that's also part of a learning
process and then as you mark your answer
will come across new things add the
notes it will just make your revision so
much easier hope you learned something
today
good luck and thank you for watching
this video
Ver Más Videos Relacionados
Audit Planning Overall Audit Strategy | Audit Course
2.4 Overview of the Audit Process Audit Planning Audit Strategy vs Plan vs Program
Audit Risk Model
2.3 Overview of the Audit Process Audit Planning Risk Assessment
2.2 Overview of the Audit Process Auditing Planning Knowledge, Analytics, Materiality
Audit Risk Model (Audit, Inherent, Control & Detection Risks)
5.0 / 5 (0 votes)