CAF 08 – AUDIT AND ASSURANCE
BY MUHAMMAD IBRAHIM
PAST PAPER – ISA-300 (PLANNING)
Question: (Autumn 2010 Q.6, 9 marks)
(a) What is the difference between audit strategy and audit plan?
(b) You have been appointed as the auditor of a company which was previously audited by
another auditor. Being a new client, what additional considerations would you take into
account while performing the preliminary engagement activities prior to commencement of
the audit?
Answer (a):
The audit strategy sets the scope, timing and direction of the audit. It also provides guidance
for the development of audit plan.
The audit plan is more detailed than the audit strategy and it includes the nature, timing and
extent of audit procedures to be performed by the engagement team members. The planning
for these audit procedures takes place over the course of audit as the audit plan for the
engagement develops.
Answer (b):
The auditor should perform the following activities prior to starting an initial audit engagement:
(i) Performing procedures regarding the acceptance of the client relationship and the
specific audit engagement.
(ii) Unless prohibited by law, arrangements to be made with the predecessor auditor, for
example, to review the predecessor auditor’s working papers.
(iii) Any major issues discussed with management in connection with the initial selection as
auditor, the communication of these matters to those charged with governance, and how
these matters affect the audit strategy and audit plan.
(iv) The audit procedures necessary to obtain sufficient appropriate audit evidence regarding
opening balances.
(v) Other procedures required by the firm’s system of quality control for initial audit
engagements.
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CAF 08 – AUDIT AND ASSURANCE
BY MUHAMMAD IBRAHIM
PAST PAPER – ISA-300 (PLANNING)
Question: (Spring 2014 Q.1, 16 marks)
(a) Briefly describe ‘Preliminary Engagement Activities’ and ‘Planning Activities’.
(b) You are the partner of Alamgir and Company, Chartered Accountants and have received an
offer for appointment as auditor of Guava Limited (GL). The previous year’s audit was carried
out by Babur and Company, Chartered Accountants.
Required: State the matters that you would consider:
(i) while deciding about the acceptance of audit of GL.
(ii) in establishing the overall audit strategy, including matters which are to be considered, being
the initial audit engagement.
Answer (a):
Preliminary Engagement Activities:
These are the activities undertaken by the auditor at the beginning of the audit engagement,
and include:
(i) Performing procedures regarding the continuance of the client relationship and the specific
audit engagement;
(ii) Evaluating compliance with the relevant ethical requirements, including independence; and
(iii) Establishing an understanding of the terms of the engagement.
Planning Activities:
Planning activities includes establishing an overall audit strategy that sets the scope, timing and
direction of the audit, and that guides the development of the audit plan.
Answer (b):
(i) Information that Alamgir & Co. Chartered Accountants needs to obtain in deciding
whether or not to accept the audit of GL:
Following matters may be considered in deciding about the acceptance of audit:
▪ The integrity of the principal owners, key management and those charged with
governance of the entity;
▪ Whether the engagement team is competent to perform the audit engagement and
has the necessary capabilities, including time and resources;
▪ Whether the firm and the engagement team can comply with relevant ethical
requirements;
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CAF 08 – AUDIT AND ASSURANCE
BY MUHAMMAD IBRAHIM
PAST PAPER – ISA-300 (PLANNING)
(ii) Matters that may be considered in establishing the overall audit strategy:
In establishing the overall audit strategy, the auditor shall:
▪ Identify the characteristics of the engagement that define its scope;
▪ Ascertain the reporting objectives of the engagement to plan the timing of the audit
and the nature of the communications required;
▪ Consider the factors that, in auditor's professional judgment, are significant in
directing the engagement team's efforts;
▪ Consider the results of the preliminary engagement activities and, where applicable,
whether knowledge gained on other engagement performed by the engagement
partner for the entity is relevant; and
▪ Ascertain the nature, timing and extent of resources necessary to perform the
engagement.
Being the initial audit engagement following matters should also be considered in
establishing the overall audit strategy:
▪ Arrangements to be made with the predecessor auditor.
▪ Communicate major issues identified during discussion with the management, to
those charged with governance and consider that how these matters will affect the
overall audit strategy and audit plan.
▪ The audit procedures necessary to obtain sufficient appropriate audit evidence
regarding opening balances.
▪ Other procedures required by the firm's system of quality control for initial audit
engagements (for example, the firm's system of quality control may require the
involvement of another partner or senior individual to review the overall audit strategy
prior to commencing significant audit procedures or to review reports prior to their
issuance).
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CAF 08 – AUDIT AND ASSURANCE
BY MUHAMMAD IBRAHIM
PAST PAPER – ISA-300 (PLANNING)
Question: (Autumn 2017 Q.2, 4 marks)
Your firm has recently been appointed as the external auditor of Door Limited. The engagement
partner has planned a meeting with the audit team to discuss the overall audit strategy and finalize
the audit plan.
Required:
List the planning activities which you would need to discuss with the engagement partner
regarding the issues related to first year of audit engagement.
Answer:
Since it will be the first time we will be auditing Door Limited, I will have to discuss the following
additional matters with the engagement partner:
▪ Arrangements to be made with the predecessor auditor, for example, to review the
predecessor auditor’s working papers;
▪ Any major issues (including the application of accounting principles or of auditing and
reporting standards) discussed with management in connection with the initial selection as
auditor, the communication of these matters to those charged with governance and how
these matters affect the overall audit strategy and audit plan;
▪ The audit procedures necessary to obtain sufficient appropriate audit evidence regarding
opening balances; and
▪ Other procedures required by the firm’s system of quality control for initial audit
engagements.
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