## Planning an Audit of Financial Statements (SA-300)

### What is an Audit Plan?

An audit plan details the NTE (Nature, Timing, Extent) of:

1. Risk Assessment Procedures (per SA-315 — identifying & assessing RMM)

2. Further Audit Procedures (per SA-330 — auditor's response to assessed risk)

3. Other procedures required by other SAs

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### Audit Strategy vs. Audit Plan

Aspect	Overall Audit Strategy	Audit Plan
Scope	Broader concept	More detailed — NTE of specific procedures
Established	First	Developed from the strategy
Relationship	Interrelated — change in one may cause change in other

They are NOT sequential or discrete — they are continual and iterative.

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### Nature of Planning

Planning is NOT a discrete phase — it is a continual and iterative process that:

Begins shortly after completion of the previous audit
Continues until completion of the current engagement

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### Benefits of Audit Planning — Memory Aid: RCSO-DA

Code	Benefit
R	Resolution of problems on a timely basis
C	Coordination with experts and component auditors
S	Selection of ET members with appropriate capabilities
O	Organizing and managing the audit
D	Directing and supervising ET members and reviewing their work
A	Appropriate attention to important areas

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### Preliminary Engagement Activities

Activity	Details
Acceptance & Continuance	Integrity of client, firm's competence, significant matters from prior audit; for initial audit — contact predecessor auditor
Ethical Requirements	Evaluate compliance; apply safeguards to threats; if unresolvable → withdraw
Terms of Engagement	Send engagement letter before commencement to avoid confusion

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### Factors to Consider Before Risk Assessment Procedures

#	Factor
1	Performing Analytical Procedures as risk assessment
2	Other Risk Assessment Procedures
3	Determining Materiality
4	Legal and Regulatory framework
5	Involvement of Experts

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### Overall Audit Strategy — Factors (PANI)

Characteristics of the Engagement:

Letter	Factor
P	Previous Audit — expected to use audit evidence from prior audit
A	Applicable Financial Reporting Framework
N	Nature of segment to be audited
I	Industry-specific reporting requirements

Reporting Objectives:

Timetable of reporting
Discussions with management on type and timing of reports
Meetings with ET members to ensure communication (nature and timing)

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### How Strategy Assists the Auditor

Guidance on	Example
Resources deployed	Experienced members for high-risk areas; Experts for complex valuations
Amount of resources	Number of ET members for inventory count; Hours for high-risk areas
Timing of deployment	Interim testing vs. year-end; Cut-off procedures
Direction and supervision	Team briefings/de-briefings; EP review: on-site vs. off-site

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### Revision of Audit Plan

Auditor must revise the plan if:

1. Information obtained is significantly different from prior expectations

2. Unexpected events occur or conditions change

3. Audit evidence contradicts the prior risk assessment (e.g., substantive results contradict TOC results)

When the plan is revised: also revise the NTE of audit procedures.

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### Sharing the Audit Plan

Auditor may share elements of the plan with management
BUT: must ensure audit effectiveness is not compromised
The overall strategy and plan remain the auditor's responsibility

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### Factors Affecting NTE of Direction and Supervision of ET Members

1. Size and complexity of the entity

2. Risk of Material Misstatement

3. Area of audit

4. Capabilities and competence of ET members

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### Documentation Requirements

Document	What to Record
Audit Strategy	Key decisions; Communication of significant matters
Audit Plan	NTE of Risk Assessment Procedures; NTE of Further Audit Procedures
Significant changes	Why changes were made; Final adopted strategy; Response to the change

Worked example

### Example 1

During planning, the auditor reviews last year's file and notes inventory was assessed as low risk. However, the client has now expanded into a new product line with complex fair value-based inventory. The auditor revises the overall audit strategy to include an inventory valuation specialist and increases NTE of inventory procedures — this revision is triggered by 'significantly different' circumstances than previously anticipated.

### Example 2

The auditor's substantive procedures on accounts receivable reveal ₹20 lakhs in unrecorded bad debts that the entity's credit review process (tested via TOC) should have caught. The TOC results had suggested the process was effective. This contradiction requires the auditor to: (a) revise the audit plan for accounts receivable, (b) increase the extent of substantive testing, (c) reassess the RMM for this area, and (d) document why the revision was made.

⚠️ Common exam mistakes

Treating planning as a one-time phase at the start of the audit — planning is continuous and iterative throughout the entire engagement.
Confusing audit strategy (broader direction and key decisions) with audit plan (detailed NTE of specific procedures) — both are needed; the plan is developed from the strategy but they are interrelated, not sequential.
Thinking the auditor cannot share any part of the plan with management — some elements CAN be shared; the restriction is only on sharing information that would compromise audit effectiveness.
Not revising the plan when unexpected events occur — if audit evidence contradicts prior RAP, BOTH the plan AND the NTE of audit procedures must be revised.
Treating planning documentation as optional — SA-300 requires documentation of audit strategy, NTE of RAP, NTE of FAP, and the reasons for any significant changes made during the audit.

Reference: — SA 300 — Planning an Audit of Financial Statements (ICAI)

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