In this video, I explain the overall audit strategy as part of audit planning.
✔️Accounting students or CPA Exam candidates, check my website for additional resources: https://farhatlectures.com/

#cpareviewcourse #auditcourse #accountinglectures

After understanding the client’s reasons for the audit, the auditor should develop and document a preliminary audit strategy that sets the scope, timing, and direction of the audit and that guides the development of the audit plan. This strategy considers the nature of the client’s business and industry, including areas where there is greater risk of significant misstatements.

The auditor also considers other factors such as the number of client locations and the past effectiveness of client controls in developing a preliminary approach to the audit. The planned strategy helps the auditor determine the resources required for the engagement, including engagement staffing.

Select Staff for Engagement
The auditor must assign the appropriate staff to the engagement to comply with auditing standards and to promote audit efficiency. One of the underlying principles in auditing standards is that Staff must therefore be assigned with that requirement in mind, and those assigned to the engagement must be knowledgeable about the client’s industry. Larger audit engagements are likely to require one or more partners and staff at several experience levels. Individuals in multiple offices of the firm may be involved, including offices outside the United States, if the client has operations in numerous locations around the world. Specialists in such technical areas as statistical sampling, business valuation, and IT risk assessment may also be assigned. On smaller audits, only one or two staff members may be needed.

A major consideration of staffing is the need for continuity from year to year. Continuity helps the CPA firm maintain familiarity with the technical requirements and closer interpersonal relations with client personnel. An inexperienced staff assistant is likely to become the most experienced nonpartner on the engagement within a few years.

Consider a computer manufacturing client with extensive inventory of computers and computer parts where risk of material misstatement for inventory has been assessed as high. It is essential for the staff person doing the inventory portion of the audit to be experienced in auditing inventory. The auditor should also have a good understanding of the computer manufacturing industry. The CPA firm may decide to engage a specialist if no one within the firm is qualified to evaluate whether the inventory is obsolete.

Evaluate Need for Outside Specialists
If the audit requires specialized knowledge, it may be necessary to consult a specialist. Auditing standards establish the requirements for selecting specialists and reviewing their work. Specialists may be employed by the client, employed by the audit firm, or unaffiliated with the client and the audit firm. Examples include using a diamond expert in evaluating the replacement cost of diamonds and an actuary for determining the appropriateness of the recorded value of insurance loss reserves. Another common use of specialists is consulting with attorneys on the legal interpretation of contracts and titles or business valuation experts on fair value accounting treatments.

The auditor must have a sufficient understanding of the client’s business to recognize whether a specialist is needed. The auditor needs to evaluate the specialist’s professional qualifications and understand the objectives and scope of the specialist’s work. The auditor should also consider the specialist’s relationship to the client, including circumstances that might impair the specialist’s objectivity. The use of a specialist does not affect the auditor’s responsibility for the audit, and the audit report should not refer to the specialist unless the specialist’s report results in a modification of the audit opinion.