A Planning Document is a cost-efficient way to document inquiries from the planning phase of an audit engagement and to coordinate and summarize the results of various risk assessment procedures. The engagement administration section of an illustrative Planning Document was presented in my last article. Illustrative technical audit planning decisions documentation, Part 2 of a Planning Document, is presented below.
Technical Audit Planning Decisions
- Risk of misstatement at the financial statement level:
Use of Statements:
High-risk uses of statements should be described.
Potential for Going-Concern Problems:
Continued losses, high debt and external situations that threaten the continued existence of the company should be described.
Integrity of Management:
Specific information that could cast doubt on management's integrity, or lack thereof, should be discussed here.
An overall evaluation of risk at the financial statement level should be made and the subjective impact on engagement procedures should be recorded for use in making materiality calculations and audit program modification. This documentation may be included here or the section may be cross-referenced to other audit documentation such as a Client Acceptance and Continuance Form.
A1. The risk of misstatements evaluation at the assertion level (account classification level on smaller audits), and the impact on the audit strategy by major financial statement account classification should be documented in this section or a cross-reference to other practice aids may be recorded here.
- Materiality Judgments:
A summary of the Materiality Worksheet calculations and the auditor's reasoning reflecting assessed levels of risk of material misstatements should be presented here. This section also may be cross-referenced to other practice aids.
- Sampling Decisions:
This section should describe the reasons for making decisions to sample or not sample. If decisions are made not to sample, the rationale and criteria for planning a strategy not to sample should be explained. If sampling applications are planned using practice aids, this section could also be cross-referenced to those practice aids.
- Audit Strategies:
Detailed substantive tests of balances, risk assessment procedures, tests of controls, systems walk-through procedures and/or extensive analytical procedures are options for the general audit strategy. A cost-efficient audit strategy will ordinarily include obtaining a maximum amount of evidence from risk assessment and analytical procedures, thereby minimizing more costly detailed tests of balances. Audit strategies must be planned for all material financial statement classifications. This section may be cross-referenced to practice aids documenting the assessed levels of risk of material misstatement and related audit strategies for major financial statement classifications.
- Nature of Procedures:
General descriptions of the nature, extent and timing of tests of balances procedures and analytical procedures for material financial statement classifications should be described here or cross-referenced to other practice aids.
- Significant Time-Savings Opportunities:
Opportunities to save time on the engagement not discussed elsewhere should be detailed here.
- Engagement Team Meeting:
This section should document the significant potential risks of misstatement due to error or fraud, planned audit responses and other matters discussed at the engagement team meeting. All engagement personnel, including sole practitioners, partners or directors, are required to attend this meeting.
- Potential Risks of Misstatement due to Error or Fraud:
If other documentation such as a general ledger analysis worksheet or an exception report from data extraction software has been prepared to list unusual matters, related inquiries of reporting entity personnel and auditor responses, this section would not ordinarily be necessary.
From risk assessment procedures:
Potential risks of misstatement discovered during the risk assessment procedures, and the planned audit responses, should be documented here.
From reading the general ledger account activity and performing other analytical procedures:
Unusual matters, variances or other potential risks, and the planned audit responses, should be documented here.
Factors discovered throughout the engagement, along with audit responses and their results:
From inquiries of management personnel:
From inquiries of staff personnel:
From communication with persons charged with governance:
From performing fieldwork and other auditing procedures:
Reviewed by:_______________________________ Date:_________________________
Benefits from using a Planning Document
The Planning Document is a vehicle for guiding and documenting planning activities and the engagement team's brainstorming meeting. A standardized format, such as outlined in the past two articles, ensures uniformity of the planning activities among engagements and provides engagement leaders assurance that the in-charge accountant has considered all aspects of planning. The Planning Document can be presented to the leader during or after the engagement team meeting or, to save time, a draft can be submitted in advance for the leader's reading. During the meeting, changes in information or approaches can be reflected in the document for the leader's final approval before fieldwork begins. This document can be an essential part of a CPA firm's quality control system for performing an audit engagement with the highest possible quality in the least amount of time.