The overall audit strategy

Summary

This 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.