Audit Strategy Memorandum Template
(Following draft may be used)
AUDIT STRATEGY
The process of establishing the overall audit strategy assists the auditor to determine, subject to the completion of the auditor’s risk assessment procedures, such matters as:
- The resources to deploy for specific audit areas, such as the use of appropriately experienced team members for high risk areas or the involvement of experts on complex matters;
- The amount of resources to allocate to specific audit areas, such as the number of team members assigned to observe the inventory count at material locations, the extent of review of other auditors’ work in the case of group audits, or the audit budget in hours to allocate to high risk areas;
- When these resources are to be deployed, such as whether at an interim audit stage or at key cut-off dates; and
- How such resources are managed, directed and supervised, such as when team briefing and debriefing meetings are expected to be held, how engagement partner and manager reviews are expected to take place (for example, on-site or off-site), and whether to complete engagement quality control reviews.
- Once the overall audit strategy has been established, an audit plan can be developed to address the various matters identified in the overall audit strategy, taking into account the need to achieve the audit objectives through the efficient use of the auditor’s resources. The establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential processes, but are closely inter-related since changes in one may result in consequential changes to the other.
Additional Considerations in Initial Audit Engagements
The purpose and objective of planning the audit are the same whether the audit is an initial or recurring engagement. However, for an initial audit, the auditor may need to expand the planning activities because the auditor does not ordinarily have the previous experience with the entity that is considered when planning recurring engagements. For initial audits, additional matters the auditor may consider in establishing the overall audit strategy and audit plan include the following:
- Unless prohibited by law or regulation, arrangements to be made with the predecessor auditor, for example, to review the predecessor auditor’s working paper.
- Any major issues (including the application of accounting principles or of auditing and reporting standards) discussed with management in connection with the initial selection as auditor, the communication of these matters to those charged with governance and how these matters affect the overall audit strategy and audit plan.
- The audit procedures necessary to obtain sufficient appropriate audit evidence regarding opening balances (see SA 510, “Initial Audit Engagements–Opening Balances”).
- Other procedures required by the firm’s system of quality control for initial audit engagements (for example, the firm’s system of quality control may require the involvement of another partner or senior individual to review the overall audit strategy prior to commencing significant audit procedures or to review reports prior to their issuance).
Considerations in Establishing the Overall Audit Strategy
The appendix to SA 300 provides examples of matters the auditor may consider in establishing the overall audit strategy. Many of these matters will also influence the auditor’s detailed audit plan. The examples provided cover a broad range of matters applicable to many engagements. While some of the matters referred to below may be required by other SAs, not all matters are relevant to every audit engagement and the list is not necessarily complete.
Characteristics of the Engagement
- The financial reporting framework on which the financial information to be audited has been prepared, including any need for reconciliations to another financial reporting framework.
- Industry-specific reporting requirements such as reports mandated by industry regulators.
- The expected audit coverage, including the number and locations of components to be included.
- The nature of the control relationships between a parent and its components that determine how the group is to be consolidated.
- The extent to which components are audited by other auditors.
- The nature of the business segments to be audited, including the need for specialized knowledge.
- The reporting currency to be used, including any need for currency translation for the financial information audited.
- The need for a statutory audit of standalone financial statements in addition to an audit for consolidation purposes.
- The availability of the work of internal auditors and the extent of the auditor’s potential reliance on such work, or internal auditors can be used to provide direct assistance.
- The entity’s use of service organizations and how the auditor may obtain evidence concerning the design or operation of controls performed by them.
- The expected use of audit evidence obtained in previous audits, for example, audit evidence related to risk assessment procedures and tests of controls.
- The effect of information technology on the audit procedures, including the availability of data and the expected use of computer-assisted audit techniques.
- The coordination of the expected coverage and timing of the audit work with any reviews of the interim financial information and the effect on the audit of the information obtained during such reviews.
- The availability of client personnel and data.
A. Timing of audit activities
| Activitiy | Timing |
|---|
| Audit Planning | July xx, 2xx3- July xx, 2xx3 |
| Review by EQCR | July xx, 2xx3- July xx, 2xx3 |
| Audit Field Work | July xx, 2xx3- September xx, 2xx3 |
| Review by Manager | September xx, 2xx3 |
| Review by Engagement Partner | September xx, 2xx3 - September xx, 2xx3 |
| Review by EQCR | September xx, 2xx3 - September xx, 2xx3 |
| Response on Audit Memo | September xx, 2xx3 |
| Review by Partners – internally post response on audit memo | September xx, 2xx3 |
| Review by EQCR | September xx, 2xx3 |
| Finalization of Audit report and financials | September xx, 2xx3-September xx, 2xx3 |
| Issue of audit report and financials | September xx, 2xx3 |
B. Materiality (Refer chapter 2.8 and chapter 2.9)
C. Testing Plan and Planned Audit Procedures (Refer chapter 2.12)
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 completion 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 analytical procedures to be applied as risk assessment procedures.
- Obtaining 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 experts.
- The performance of other risk assessment procedures.
D. Others
| Particulars | Response |
|---|
| Participation of other ABC office | Yes/No |
| Use of the work of the internal auditor | Yes/No |
| Use of the work of external expert | Yes/No |
| Use of service organisation by the entity | Yes/No |
