Audit Planning, Strategy and Execution (including audit evidence and documentation)
This domain tests how an audit is planned, risk-assessed, executed and documented under SAs 300, 315, 320, 330, 500 and 230.
Core rules
- The audit strategy sets scope, timing, direction and resources; the audit plan sets the nature, timing and extent of procedures.
- SA 315 requires understanding the entity, its environment and internal control, and identifying risks of material misstatement, including significant risks.
- SA 320 requires overall materiality, performance materiality and specific materiality for particular classes of transactions; materiality is revised as the audit progresses.
- SA 500 requires sufficient and appropriate audit evidence through inspection, observation, inquiry, confirmation, recalculation, re-performance and analytical procedures.
- SA 230 requires documentation of significant matters, assembled in the final audit file within 60 days of the auditor’s report.
Worked example
Profit before tax is 50,00,000. Using 5% as the benchmark, overall materiality is 2,50,000. Performance materiality at 75% is 1,87,500, so testing is designed to reduce the probability that uncorrected misstatements exceed overall materiality. A clearly trivial threshold of 5% of overall materiality is 12,500.
Traps
Treating planning as a one-time activity; treating materiality as purely quantitative and fixed; and relying on oral explanations without documenting corroborating evidence.
Exam focus
Materiality computations, risk identification, evidence procedures and documentation requirements.