## Establishing the Overall Audit Strategy

### What is the Overall Audit Strategy?

The overall audit strategy sets the scope, timing, and direction of the audit and guides the development of the more detailed audit plan.

> Strategy = the what and when; Plan = the how

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### Four Steps to Establish the Overall Audit Strategy

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Step 1 → Identify the Scope of Engagement

Step 2 → Ascertain the Reporting Objectives

Step 3 → Consider Significant Factors Directing the Engagement Team's Efforts

Step 4 → Consider Results of Preliminary Engagement Activities

```

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#### Step 1: Identify the Scope of Engagement

Only a well-identified scope can lead to the establishment of a sound audit strategy.

What entities/branches are covered?
What financial periods?
What reporting frameworks apply?

#### Step 2: Ascertain the Reporting Objectives

Understanding reporting objectives helps the auditor plan:

Timing of different audit procedures
Nature of communications required

Example: If a listed company needs interim results by a specific date, timing of procedures must align.

#### Step 3: Consider Significant Factors Directing the ET's Efforts

The auditor must direct efforts of the engagement team toward matters that are professionally significant.

This includes preliminary identification of:

Material classes of transactions
Account balances
Disclosures

#### Step 4: Consider Results of Preliminary Engagement Activities

Knowledge gained from:

Preliminary engagement activities
Similar prior engagements

...goes a long way in establishing a sound audit strategy.

Worked example

### Example 1

Example — Scope Identification:

ABC Group Ltd has 3 subsidiaries — two domestic and one overseas. In establishing the overall audit strategy, the engagement partner must determine: (a) whether component auditors will be used for the overseas subsidiary, (b) what the reporting deadline is for the consolidated financials, and (c) which account areas are material at the group level. These define the scope.

### Example 2

Example — Directing ET Efforts:

For a manufacturing company, preliminary analysis shows that inventory constitutes 45% of total assets. The audit strategy should direct maximum team effort toward inventory valuation and existence procedures — this is identifying a 'significant factor' under Step 3.

⚠️ Common exam mistakes

Confusing 'audit strategy' with 'audit plan' — strategy sets the broad direction; plan is the detailed document describing how to implement the strategy.
Skipping Step 4 (preliminary engagement results) when the client is a repeat engagement — the results of continuance and independence procedures directly affect the strategy.
Thinking the audit strategy is fixed once written — it can and must be updated if unexpected events arise during the audit.

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

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