For example, the auditor will use risks based audit approach or a top-down approach to conduct audit assignments.
Another example, auditors just engage with the new audit clients and they decided not to rely on the internal control financial statements by deciding not to test of control. They just go to a substantive test. This is what the audit strategy means.
Audit strategy normally identifies and sets after the audit objective but before or at the same time as the audit plan is performed. Managing the time frame of the audit assignment is also part of the audit strategy.
The right audit strategy could lead to minimizing auditor risks, meeting audit deadlines, and using audit resources efficiently.
The auditor will have to make sure that the audit assignment is not only complete within the time required by its client, but they have to make sure that there is sufficient time to ensure that the maximum audit quality is maintained.
The following is a detailed explanation of audit strategy and the way how to set audit strategy. Once you complete this explanation, you will be able to figure out what the audit strategy means.
Audit strategy is very important for the success of audit engagement. A good audit strategy, based on ISA 300 should contain the following key importance points:
How to set an audit strategy?
- In the audit strategy, the auditor should Identify the characteristics of the engagement and define the scope of the audit. This is a very important point before starting further work. For example, audit clients’ financial statements based on international auditing standards, and the client’s financial statements are prepared based on US GAAP.
- The auditor should also identify the reporting objectives of audit engagement to that they could set the timing of the audit and figure out the nature of the communications that should require. For example, the audit report is required by the parent company and it will not publish online. In most cases. auditor state the disclaimers in the audit report.
- It is part of the audit strategy that auditors should identify or figure out what are the key factors or key areas in the audit engagement that required high professional judgment. If there are any factors or areas required for professional judgment, the auditor might consider if they have enough resources with high competency to do the job or not. If not, maybe withdraw from engagement or seek other resources.
- Assess if the knowledge that auditors gain and the result of their pre-analytical review our consistent. This is normally done by comparing the auditor’s knowledge which is normally obtained by sitting down with management and understanding the nature of business against the result of the audit team performing the pre-analytical review of the financial statements obtained from clients. If the result is consistent, then the question of management integrity should be okay. But, in case, the result is different, then auditors might take more skeptical about any management answer.
- Audit evidence is very important. The auditor should consider the possibilities that they could obtain the audit evidence, the nature of audit evidence, and any restrictions on that.
Objective and Purpose of Audit Strategy:
- To set the scope of the audit engagement
- To establish the time frame of the audit
- To manage and arrange the audit effectively and correctly
- To set the right audit approach
- Documentation about Audit methodology
In conclusion, audit strategy is the way in which auditors understand and set audit scope, the timing of audit engagement, set out the strategy for directing audit engagement, and develop an audit plan for the success of audit engagement. The audit plan and audit strategy are different.
Written by Sinra