## Establishing the Overall Audit Strategy

After completing preliminary engagement activities, the auditor establishes an Overall Audit Strategy. This sets the scope, timing, and direction of the audit and guides the subsequent development of the Audit Plan.

### Three Dimensions of Audit Strategy

Dimension	Meaning
Scope	What is to be covered — boundaries of the audit
Timing	When audit work is performed — interim stage or year-end
Direction	How team members need to be directed

### Factors to Consider When Establishing Audit Strategy

(i) Identify characteristics of the engagement (define scope)

Applicable Financial Reporting Framework (Ind AS / AS)
Nature of business segments to be audited and need for specialised knowledge
Industry-specific reporting requirements (e.g., LFAR for banks)
Expected use of audit evidence obtained in a previous audit

(ii) Ascertain reporting objectives of the engagement

Entity's timetable for reporting
Organise meetings to discuss nature, timing, and extent of audit work with management
Discuss expected timing and type of auditor's reports to be issued
Expected nature and timing of communication throughout the engagement

(iii) Consider significant factors in directing the engagement team

Significant industry developments or new reporting requirements
Significant changes in Financial Reporting Framework (new AS / Ind AS)
Other significant recent developments in the legal environment affecting the entity
Volume of transactions — determines whether it is efficient to rely on internal controls

(iv) Consider results of preliminary engagement activities

Knowledge gained from engagement performed previously
Results of previous audit involving evaluation of operating effectiveness of internal controls, including identified deficiencies and actions taken

(v) Ascertain nature, timing, and extent of resources

Selection of the engagement team
High Risk of Material Misstatement (ROMM) areas → assign experienced team members + devote more time

Worked example

### Example 1

Scenario: You are the audit partner for a nationalised bank. How does 'identifying characteristics of the engagement' shape your audit strategy?

Answer:

Applicable FRF: Ind AS (banking)
Industry-specific reporting requirement: you must plan for LFAR (Long Form Audit Report) — a bank-specific requirement
Specialised knowledge needed: provisioning norms, RBI guidelines, NPA classification
Scope therefore expands beyond a standard statutory audit to include LFAR coverage — this must be reflected in the overall audit strategy from the outset.

### Example 2

Scenario: During strategy-setting, you learn the entity's volume of transactions is very high. What strategic decision does this trigger?

Answer: High transaction volume means it may be efficient to rely on internal controls rather than perform extensive substantive testing on every transaction. The strategy should flag this so the audit plan includes tests of controls (SA 330) for those transaction cycles.

⚠️ Common exam mistakes

Treating the audit strategy as a fixed document — it must be updated whenever unexpected events, changed conditions, or new audit evidence arise.
Confusing scope (what will be audited) with the audit plan (how it will be audited) — the strategy sets boundaries, the plan describes specific procedures.
Forgetting that high-ROMM areas require both experienced team members AND more time devoted — not just senior staff.
Overlooking industry-specific requirements (like LFAR for banks) when identifying engagement characteristics, leading to scope gaps.

Bare-Act text Overall Audit Strategy · SA 300 – Planning an Audit of Financial Statements (ICAI) · click to expand

The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan.

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Establishing Overall Audit Strategy

Worked example

⚠️ Common exam mistakes