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Unit 5: Audit Planning

6. any need to revise the nature, timing and extent of audit work performed has been Notes
identified;
7. significant matters have been raised for further consultation; and
8. appropriate consultations have taken place and the resulting conclusion have been
documented and implemented.
The engagement team will usually consist of a partner, manager, audit senior and junior.

5.9 Evaluate Need for Outside Experts

ISA 620 defines an expert as a person or firm possessing special skill, knowledge, and experience
in a particular field other than accounting and auditing. The auditor must have an understanding
of the clients business sufficient to identify whether an expert is needed e.g. where inventory is
highly specialized and is material to the financial statements independent valuation by an
expert may be necessary. Where an expert’s work is needed as audit evidence, the auditor should
evaluate the expert’s skills and competence by considering professional qualifications, experience,
and reputation. The expert’s objectivity should be considered.

Task Identify different skills and qualifications of an expert.
5.10 Understand the Client’s Business and Industry

ISA 310 requires a reasonable understanding of the clients business and industry. The nature of
the clients business and industry affects client business risk and the risk of material misstatement
in the financial statements. Auditors use the knowledge of these risks to determine the appropriate
amount of audit evidence to gather. Auditors have been exposed to problems resulting from the
auditor’s failure to understand comprehensively the nature of transactions in clients industry.
The auditor must also have an understanding of the client’s external environment, including
economic conditions, impact of competition, reporting obligations, legal and regulatory
requirements. The auditor should source this information by reading industry trade publications,
and regulatory requirements.
The auditor should identify factors such as major sources of income, key customers and suppliers,
sources of finance, related parties and transactions with related parties requiring disclosure that
may be high-risk areas within the client. The auditor should make inquiries of management and
others within the entity in relation to the above. Visiting the client’s premises is also useful in
this regard because it gives an opportunity to observe operations firsthand and to meet key
employees.
Transactions with related parties are important to auditors because the International Accounting
Standards require that such transactions be disclosed in the financial statements if they are
material. As management are pivotal in establishing an entities strategies and business processes
the auditor should consider managements philosophy and operating style and its ability to
identify and respond to risks as this significantly affects the risk of material misstatement in the
financial statements. In this regard, the auditor should read the memorandum and articles of
association, read minutes of board of directors and shareholders, and inquire of management.
The auditor should understand the clients objectives related to reliability of financial reporting;
effectiveness and efficiency of operations; and compliance with laws and regulations.
Auditors need knowledge about operations to assess client business risk and inherent risk in the
financial statements. The auditor should make inquiries of management; review prior year

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