What is Audit Planning-Why is planning an audit is necessary?(ISA-300)
Audit planning is the process of developing a strategy for conducting an audit engagement effectively and efficiently. It involves setting objectives, determining the scope of the audit, identifying risks, and designing audit procedures to obtain sufficient and appropriate audit evidence. Here are some key points about audit planning:
Why is planning an audit necessary?
1. Setting Objectives:
The auditor identifies the purpose and objectives of the audit engagement, such as expressing an opinion on the financial statements' fairness or compliance with regulatory requirements.
2.Understanding the Entity:
The auditor obtains an understanding of the audited entity's business, industry, operations, internal control environment, and financial reporting practices.
3.Assessing Risks:
The auditor assesses the risk of material misstatement in the financial statements due to errors or fraud. This includes identifying inherent risks related to the nature of the business and control risks related to the effectiveness of internal controls.
4.Determining Materiality:
The auditor establishes a materiality threshold to determine the significance of misstatements in the financial statements that could influence users' decisions.
5.Designing Audit Procedures:
Based on the assessed risks and materiality, the auditor designs audit procedures to obtain sufficient and appropriate audit evidence. This may include tests of controls, substantive procedures, analytical procedures, and other audit techniques.