i) Distinction between audit strategy and audit plan:

• Audit strategy sets the overall scope, timing, and direction of an audit and guides the development of the more detailed audit plan.
• Audit plan is a more detailed process that sets out the work to be done in order to achieve the audit strategy.

(2.5 marks)

While audit strategy entails high-level assessments done by senior audit personnel to determine the overall audit approach and risk nature of the audit, the audit plan consists of a set of instructions to the audit team specifying the audit procedures that should be performed in each area of the audit.

(2.5 marks)

ii) Contents of Audit Strategy:

• Determines the characteristics of the engagement that define its scope, such as:
  • The reporting standards applying to the audit
  • Industry-specific reporting requirements
  • Reporting objectives of the engagement
  • Reporting deadlines
  • Nature of communications and reports required
  • Factors that will determine the focus of the audit
  • Materiality
  • Risk assessment
  • The audit approach – whether relying on internal control, extent of test, etc.
  • Any recent developments in relation to the entity, the industry, or financial reporting requirements
• Determining the nature, the extent, and timing of the resources from the results of the above
  • Which staff and how many to use
  • Which areas of the audit to use them
  • How they are to be managed, supervised, and directed

(5 points for 5 marks)

Contents of Audit Plan:

• Procedures to be used in order to assess the risk of misstatement in the entity’s records and financial statements.
• Materiality assessment
• Preliminary analytical procedures
• Detailed risk assessment
• Audit procedures in response to assessed risks
• Audit plan is set in a series of instructions to the audit team to address the concerns of the audit strategy.

(5 points for 5 marks)

(Total: 15 marks)