Auditing involves examining the financial statements of a subject matter of a client. Most people associate the process with fieldwork and audit procedures auditors perform. However, there are most steps involved in the process. When auditors start an audit engagement, they plan for it. This process falls under audit planning. One of the stages involved in this process is developing an audit strategy.
What is an Audit Strategy?
An audit strategy is a step in the auditing process that sets the scope, timing, and direction of audits. It includes covering various areas. Essentially, the audit strategy sets a general outline of the audit engagement. Similarly, it helps in developing the audit plan. The audit strategy covers more broad areas. Once defined, these areas allow auditors to prepare a more detailed audit plan.
One of the most crucial parts of the audit strategy is establishing the resources in an audit engagement. These include where they must be deployed, allocated, managed, direct and supervised. Once these areas get defined, auditors can work toward creating a detailed audit plan. The audit strategy plays a crucial role in helping auditors with audit engagement and fieldwork.
What areas does the Audit Strategy define?
The audit strategy defines the various areas in an audit engagement.
- The scope of the audit engagement.
- Reporting objectives.
- Timing of the audit.
- The characteristics of the engagement.
- The nature, timing, and extent of the resources involved in the audit engagement.
- The engagement budgets.
- Changes in laws, regulations, and accounting standards.
- The knowledge gained on other audit engagements.
- Nature of communications with the management and client.
- Preliminary engagement activities and the results.
- Significant factors involved in directing team efforts in the audit engagement.
Auditors must determine how detailed they want the audit strategy to be. For larger clients, this strategy can be relatively long. On top of that, the audit strategy does not use a predefined format. Auditors can create this strategy according to their internal requirements. If they require any changes in the future, auditors can alter the audit strategy to match their criteria.
What is the importance of the Audit Strategy?
The audit strategy can be highly crucial for various reasons. One of the most critical of these includes setting the scope of an audit engagement. On top of that, it also establishes the time frame for the audit. This process is also crucial in determining the resources deployed and used in the engagement. The timing of the audit also allows audit firms to manage the personnel involved in the process.
Essentially, an audit strategy allows audit firms to complete audit engagements effectively and efficiently. It sets the audit approach that auditors follow throughout an audit. On top of that, it also establishes the documentation requirements for the audit methods. Overall, the audit strategy minimizes audit risks and allows for a complete approach to handling audits.
Audit planning requires auditors to establish an audit strategy which leads to creating an audit plan. It is a stage in the auditing process that sets the scope, direction, and timing of audit engagements. On top of that, it also defines various other areas that are crucial to those engagements. The audit strategy is critical in the auditing process, as established above.
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