# Audit Planning: Phases and Key Member Involvement (SA-300)

## Why Planning Matters

Audit planning allows the auditor to devote appropriate attention to important areas, identify potential problems early, and organise the engagement efficiently.

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## Role of Key Engagement Team Members

The engagement partner and other key members must be involved in planning — including discussions among the engagement team.
Their experience and insight enhances effectiveness and efficiency of the planning process.
The auditor may discuss elements of planning with entity's management to facilitate the engagement — but must take care not to compromise audit effectiveness.

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## Three Phases of the Planning Process

### Phase 1: Preliminary Engagement Activities

Step 1 — Client and Engagement Continuance

Consider:

Integrity of principal owners and key management
Competence of the engagement team
Implications from current and previous audit engagements

Step 2 — Compliance with Ethical Requirements (Independence)

The engagement partner must:

1. Obtain relevant information to identify threats to independence

2. Evaluate identified breaches (if any) of the firm's independence policies to determine whether they create a threat

3. Take appropriate action — apply safeguards to eliminate or reduce threats to an acceptable level, or withdraw from the engagement (where permitted by law)

Step 3 — Understanding Terms of Engagement

Send an audit engagement letter before commencement
Avoids misunderstandings with the client about scope and terms

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### Phase 2: Establishing the Overall Audit Strategy

The strategy assists the auditor to determine:

What resources to deploy — experienced team members for high-risk areas, experts for complex matters
How many resources to allocate — team members at inventory counts, group audit review extent, hours budgeted to high-risk areas
When to deploy resources — interim audit stage vs. key cut-off dates
How to manage and supervise — briefing/debriefing schedules, partner/manager review approach, engagement quality control reviews

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### Phase 3: Developing the Audit Plan

Once strategy is set, the audit plan is developed to address matters identified in the strategy.

Per SA-300, the auditor shall develop an audit plan that includes a description of:

1. Nature, timing and extent of planned risk assessment procedures

2. Nature, timing and extent of planned further audit procedures at the assertion level

3. Other planned audit procedures required to comply with SAs

Worked example

### Example 1

Scenario — New Client Engagement: An auditor is appointed for ABC Ltd. for the first time.

Phase 1 (Preliminary): The partner reviews prior auditor's communication and notes management had disputed findings with the previous auditor. Independence is evaluated — no threats identified. An engagement letter is sent specifying scope and fee.
Phase 2 (Strategy): The partner identifies inventory valuation as high-risk (specialised goods). Decision: assign a senior team member with relevant industry knowledge; schedule a year-end stock count observation.
Phase 3 (Audit Plan): The plan specifies risk assessment procedures for inventory (walkthrough of controls), further procedures at assertion level (test count, price testing, NRV review), and timing (stock count on 31 March).

### Example 2

Independence Threat Example: During preliminary activities for XYZ Ltd., it is discovered that a manager on the engagement team holds shares in XYZ Ltd.

Step 1: Information identified from the firm's conflict-check system.
Step 2: Evaluated as a self-interest threat — holding equity creates a direct financial interest.
Step 3: Safeguard applied — manager is removed from the engagement. Threat reduced to acceptable level. If removal were not possible, withdrawal would be considered.

⚠️ Common exam mistakes

Skipping preliminary engagement activities and jumping directly to strategy — continuance and independence checks must come first.
Thinking that discussing elements of planning with management compromises the audit — it is permitted with care, but the auditor must not reveal risk assessments or planned procedures in ways that allow manipulation.
Assuming only the engagement partner needs to plan — SA-300 requires involvement of all key engagement team members.
Treating the three phases as optional or interchangeable — they are sequential steps with a logical dependency.

Bare-Act text Requirements — Audit Plan · SA-300 — Planning an Audit of Financial Statements (ICAI) · click to expand

The auditor shall develop an audit plan that shall include description of— (i) The nature, timing and extent of planned risk assessment procedures; (ii) The nature, timing and extent of planned further audit procedures at assertion level; (iii) Other planned audit procedures that are required to be carried out so that the engagement complies with SAs.

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Planning Process — Three Phases and Key Member Involvement

Worked example

⚠️ Common exam mistakes