A detailed analysis of what ISA 300 means and how its is ought to be implemented while conducting an audit in accordance with International Standards of Auditing.

1. PLANNING AN AUDIT OF
FINANCIAL STATEMENTS
As per ISA 300
APRIL 14, 2017
LAHORE SCHOOL OF ECONOMICS
Ayesha Majid

2. 1
This Auditing Standard ISA300 deals with the auditor's responsibility to plan an audit of a
Financial Report. This Auditing Standard is written in the context of recurring audits. Additional
considerations in an initial audit engagement are separately identified. An efficient and effective audit
can only be performed if the audit has been thoroughly and properly planned. The importance of audit
planning cannot be over emphasized and ISA 300 'Planning an Audit of Financial Statements' contains
the provisions, which the auditor is required to comply with in planning an audit. The stages of an audit
include planning, performing, and reporting of audit. During the planning stage, an auditor will gain
an understanding of their client, identify risks, develop an audit strategy, and set their planning
materiality. During the performing stage, an auditor will execute their detailed testing of account
balances and transactions. The final stage of every audit involves reviewing all of the evidence gathered
throughout the audit and arriving at a conclusion regarding the fair presentation of the client’s financial
statements. The auditor will then write an audit report that reflects their opinion based upon their
findings.
The objective of the auditor as per ISA 300 is efficient and effective planning of conducting
financial statement audit. ISA 300 “Planning an Audit of Financial Statements” should be read in
conjunction with ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with International Standards on Auditing.” Under ISA’s at all times during the
planning of the audit, the auditor has to maintain an attitude of professional scepticism, recognizing
that circumstances may exist that cause the financial statements to be materially misstated. Planning
activities for initial engagements will often be more in depth than for a recurring engagement simply
because the auditor will not have previous experience of the audit engagement and therefore the auditor
needs to ensure they gain a thorough understanding of the entity and the environment in which it
operates in accordance with ISA 315, “Understanding the Entity and its Environment and Assessing
the Risk of Material Misstatement”.
The primary objective of planning an audit involves establishing the overall audit strategy for the
engagement and developing an audit plan, in order to reduce audit risk to an acceptably low level as
per ISA 300. Planning is not a discrete phase of an audit, but rather a continual and iterative process
that often begins shortly after engagement. In planning an audit, the auditor considers the timing of
certain planning activities and audit procedures that need to be completed prior to the performance of
further audit procedures. The overall audit strategy (set by the auditor) sets the direction of the audit
and guides the development of the audit plan. The auditor considers the results of preliminary
engagement activities and previous knowledge of the entity in establishing the overall audit strategy.
Typical contents of the detailed audit plan are:
 Nature of the business and what it does
 Risk and problematic areas (both business risk and financial statement risk) – Details of any
complexities associated with the audit assignment
 Specific accounting and auditing standards relevant to the assignment
 Budgets
 Planned audit procedures
 Details of sampling techniques
 Key personnel employed at the clients
 Points brought forward from previous audits

3. 2
The audit plan consists of a detailed plan of the nature, timing and extent of audit procedures to be
performed by engagement team members. The engagement partner and other key members of the
engagement team are also involved in planning the audit plan.
In establishing the audit strategy, the auditor shall as per ISA’s:
a) Identify the characteristics of the engagement that define its scope.
b) Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature
of the communications required.
c) Consider the factors that, in the auditor’s professional judgment, are significant in directing the
engagement team’s efforts.
d) Consider the results of preliminary engagement activities and, where applicable, whether
knowledge gained on other engagements performed by the engagement partner for the entity is
relevant.
e) Ascertain the nature, timing and extent of resources necessary to perform the engagement.
f) Other planned audit procedures that are required to be carried out so that the engagement complies
with ISAs.
For example, the auditor plans the discussion among audit team members, the analytical procedures
to be applied as risk assessment procedures. Obtaining a general understanding of the legal and
regulatory framework applicable to the entity and how the entity is complying with that framework
and the performance of risk assessment procedures prior to performing detailed audit procedures at the
assertion level for individual classes of transactions, account balances, and disclosures.
ISA 300 deals with the auditor’s responsibility to plan an audit of financial. ISA 300 is written in
the context of recurring audits. Additional considerations in initial audit engagement are separately
identified. The steps outlined in the ISA for forming the audit plan helps the auditor in conducting his
work with utmost efficiency and effectiveness as well as minimizing audit risk. Adequate planning
helps to ensure that appropriate attention is devoted to important areas of the audit, that potential
problems are identified on a timely basis and that the engagement is properly organized and managed
in order to be performed in an effective and efficient manner. Furthermore, it also assists in the proper
assignment of work to engagement team members, facilitates the direction and supervision of
engagement team members and the review of their work, and assists, where applicable, in coordination
of work done by other auditors and experts.
Planning an audit is continual and iterative process throughout the audit engagement as Information
may come to the auditor’s attention that differs significantly from the information available when the
auditor planned the audit procedures. For example, the auditor may obtain audit evidence through the
performance of substantive procedures that contradicts the audit evidence obtained with respect to the
testing of the operating effectiveness of controls. In such circumstances, the auditor re-evaluates the
planned audit procedures, based on the revised consideration of assessed risks at the assertion level for
all or some of the classes of transactions, account balances or disclosures.
The nature and extent of planning activities depends upon the size and complexity of the audit
client, previous experience of the audit firm with the client, and any changes in circumstance that occur
during the audit process.
After analysing the ISA 300 it can be safely concluded that the audit strategy guides the development
of the audit plan, which contains the detailed responses to the auditor’s risk assessment. Moreover,
some audit engagements have specific characteristics that mean the audit has a wider scope than the
audit of other entities. For example, a group audit engagement or the audit of a multinational company

4. 3
will both have wider scopes than an audit of a small, owner-managed entity. Matters such as the ability
to use the work of internal auditors, the need to liaise with external service organizations, and the effect
of IT on audit procedures are also relevant. Therefore the strategy must consider issues to do with
quality control, such as how resources are managed, directed and supervised, when team briefing and
debriefing meetings are expected to be held, how engagement partner and manager reviews are
expected to take place.
Thus audit plan is a detailed programme giving instructions as to how each area of the audit will
be conducted. In other words, the audit plan details the specific procedures to be carried out to
implement the strategy and complete the audit. A typical audit plan includes sections dealing with
business understanding, risk assessment procedures, planned audit procedures i.e. the responses to the
risks identified and other mandatory audit procedures. Planning an audit involves more than just
obtaining business understanding and performing risk assessment. Planning is a dynamic process that
may evolve during the audit, and should always respond to changes in the circumstances of the audited
entity. Adherence to the requirements of ISA 300 should result in a well-focused audit, staffed by
appropriate personnel, performing relevant and appropriate audit procedures.
Adequate planning benefits the audit of a financial report in several ways, including the following
 Helping the auditor to devote appropriate attention to important areas of the audit.
 Helping the auditor identify and resolve potential problems on a timely basis.
 Helping the auditor properly organise and manage the audit engagement so that it is performed in
an effective and efficient manner
 Assisting in the selection of engagement team members with appropriate levels of capabilities and
competence to respond to anticipated risks, and the proper assignment of work to them.
 Facilitating the direction and supervision of engagement team members and the review of their
work.
 Assisting, where applicable, in coordination of work done by auditors of components and experts.
Documentation is crucial, because key decisions about how the audit will be performed are
contained in the audit strategy and audit plan. The documentation should therefore include the response
made by the auditor to any significant changes that occur during the audit, as discussed above. There
are many areas in audit planning that lend themselves to misunderstanding and misinterpretation. In
some cases audit firms have been criticized for the sheer lack of planning documentation on file, from
which inspectors can only conclude that the amount of documentation on file reflects the actual amount
of planning work that has been done. Modern auditing software usually provides a comprehensive
planning memorandum and outlines the information that should be included in the planning section of
the current audit file, but the most crucial point to bear in mind is to make sure the crucial planning
points are fully documented.