## Establishing the Overall Audit Strategy
The overall audit strategy sets the scope, timing, and direction of the audit. It guides where the engagement team should focus its efforts and what resources are needed.
### Five Steps in Establishing Audit Strategy (SA 300)
| Step | Requirement |
|---|---|
| 1 | Identify the characteristics of the engagement that define its scope |
| 2 | Ascertain reporting objectives to plan timing and nature of required communications |
| 3 | Consider significant factors in the auditor's professional judgment that direct team efforts |
| 4 | Consider results of preliminary engagement activities and knowledge from prior engagements with the entity |
| 5 | Ascertain the nature, timing, and extent of resources necessary to perform the engagement |
### Factors Significant in Directing Engagement Team Efforts (Step 3)
The auditor must direct team effort toward significant matters. Preliminary identification of material classes of transactions, account balances, and disclosures informs this exercise.
| Factor | Example |
|---|---|
| Volume of transactions | High volume → consider relying on internal controls rather than extensive substantive testing |
| Significant industry developments | Changes in industry regulations, new reporting requirements |
| Changes in the financial reporting framework | New or revised accounting standards |
| Other significant developments | Changes in the legal environment affecting the entity |
> Key principle: More attention must be devoted to significant matters to achieve the desired audit outcomes. The strategy is not mechanical — it requires professional judgment.