Understanding the business and planning the audit

Understanding the client

Consider industry and regulation, external factors, company nature and related parties, computerized processing, accounting and disclosures, objectives and strategies, business risks, and performance measures.

General business information sources

Trade magazines, journals, business magazines, and newspapers.

Company information sources

Charter and bylaws or partnership agreement, contracts and agreements, legal proceedings, board and committee minutes, acceptance or continuance work, planning information, past audits, and other engagements.

Audit team brainstorming

Required ongoing discussion of past client experience, how fraud could be committed and concealed, how to detect it, and the appropriate engagement tone.

Audit strategy memorandum

Establishes overall scope, timing, and direction for auditing relevant assertions and forms the basis of the written audit plan.

Audit strategy considerations

Reporting objectives and required communications, significant engagement direction factors, preliminary engagement results, risk assessment, and other legal or regulatory communications.

Strategy versus audit plan

Strategy provides overall direction; the audit plan lists specific procedures for relevant assertions of significant accounts and disclosures.

Written audit plan requirement

Professional standards require documentation of the planned audit approach and procedures for each engagement.