Chapter 14

Planning

© Peter T. Y. Lau and Nelson C. Y. Lam

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 Agenda

1. Planning
2. Preliminary Engagement Activities
3. Planning Activities — Overall Audit Strategy
4. Planning Activities — Audit Plan
5. Planning Activities — Changes and Control
6. Documentation
7. Additional Considerations in Initial Audit
Engagements
8. Joint Audits

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 1. Planning

Preliminary engagement activities

Planning
Planning activities

Understanding the entity

An audit is a
Identifying and assessing risks of cumulative and
material misstatement iterative process
Designing and implementing auditor’s
responses to assessed risks

Overall reviewing

Drawing audit conclusions

and reporting
© Peter T. Y. Lau and Nelson C. Y. Lam
© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 1. Planning

• HKSA 300 clearly states that “the objective of the auditor is

to plan the audit so that it will be performed in an effective
manner” .
• Planning is not a discrete phase of an audit, but rather a
continual and iterative process.

© Peter T. Y. Lau and Nelson C. Y. Lam

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 1. Planning

• Adequate audit planning helps the auditors to:

➢ Ensure that appropriate attention is devoted to important areas of
the audit;
➢ Ensure that potential problems are identified and resolved on a
timely basis;
➢ Ensure that the audit engagement is properly organized and
managed;
➢ Assist in the proper assignment of work;
➢ Facilitate the direction and supervision of engagement team
members and the review of their work; and
➢ Assist, where applicable, in coordination of work done by auditors
of components and experts.

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 1. Planning

• The key activities of the planning involve:

➢ Preliminary engagement activities, and
➢ Planning activities, which
– establish an overall audit strategy for the engagement; and
– develop an audit plan in order to reduce audit risk to an
acceptably low level.
– Example 14.1 (A2)

Preliminary engagement activities

Overall Audit Strategy

Planning activities
Audit Plan

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 2. Preliminary Engagement Activities

• HKSA 300 requires that, at the beginning of the current

audit engagement, the auditor performs the following
preliminary engagement activities:
➢ Perform procedures regarding the acceptance and continuance of
the client relationship and audit engagement;
➢ Evaluate compliance with ethical requirements, including
independence; and
➢ Establish an understanding of the terms of the engagement.
➢ (add) For example: no issue on client management’s integrity,
auditor can maintain the necessary independence in the job (A6)

© Peter T. Y. Lau and Nelson C. Y. Lam

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 3. Planning Activities — Overall Audit Strategy

• The establishment of the overall audit strategy involves:

➢ Identifying the characteristics of the engagement that define its
scope;
➢ Ascertaining the reporting objectives of the engagement to plan the
timing of the audit and the nature of the communications required;
➢ Considering the factors that are, in the auditor’s professional
judgment, significant in directing the engagement team’s efforts;
➢ Considering the results of preliminary engagement activities and,
where applicable, whether knowledge gained on other
engagements performed by the engagement partner for the entity
is relevant; and
➢ Ascertaining the nature, timing and extent of resources necessary
to perform the engagement.

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 3. Planning Activities — Overall Audit Strategy

• The auditor may consider the following matter in developing

the overall audit strategy:
➢ Characteristics of the engagement;
– Example 14.2 (appendix)
➢ Reporting objectives, timing of the audit and nature of
communications; and
– Example 14.3
➢ Significant factors, preliminary engagement activities, and
knowledge gained on other engagements.
– Example 14.4
All these help to determine: the nature, amount, time of resources
required and how to managed the resouces in the overall audit
strategy → para 13 (A8)

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 4. Planning Activities — Audit Plan

• An audit plan is more detailed than the overall audit strategy.

• HKSA 300 requires the auditor to develop an audit plan that
includes a description of:
➢ The nature, timing and extent of the planned direction and
supervision of engagement team members and the review of their
work.
➢ The nature, timing and extent of planned risk assessment procedures
(see Chapters 15 and 16), as determined under HKSA 315.
➢ The nature, timing and extent of planned further audit procedures at
the assertion level (see Chapter 20), as determined under HKSA 330.
➢ Other planned audit procedures that are required to be carried out so
that the engagement complies with HKSAs (e.g. seeking direct
communication with the entity’s lawyers).

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 4. Planning Activities — Audit Plan

• Example 14.5
The timing of planning activities, the plan
➢ For risk assessment procedures → early in the audit process
➢ For specific further audit procedures planning will depend on the
outcome of those risk assessment procedures
➢ The planning for all remaining further audit procedures will depend
on the execution of further audit procedures for some classes of
transactions, account balance and disclosure

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 5. Planning Activities — Changes and Control

• HKSA 300 requires the auditor to update and change the

overall audit strategy and the audit plan as necessary
during the course of the audit.
• Any unexpected events, changes in conditions, or the audit
evidence obtained from the results of audit procedures may
need the auditor to modify the overall audit strategy and
audit plan.
➢ Information differs significantly from the auditor planned
➢ Audit evidence that may contradict
➢ Confirmations returned are less than expected number and
alternative further audit procedures are required

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© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 6. Documentation

• HKSA 300 requires the auditor to document:

➢ The overall audit strategy;
➢ The audit plan; and
➢ Any significant changes made during the audit engagement to the
overall audit strategy or the audit plan, and the reasons for such
changes. → the appropriate response to the significant changes
occurring during the audit

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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 7. Additional Considerations in Initial Audit
Engagements
• The auditor should perform the following activities prior to
starting an initial audit:
➢ Performing procedures regarding the acceptance of the client
relationship and the specific audit engagement.
➢ Communicating with the predecessor auditor, where there has
been a change of auditors, in compliance with relevant ethical
requirements.

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 7. Additional Considerations in Initial Audit
Engagements
• For initial audits, additional matters that the auditor may
consider include:
➢ Arrangements to be made with the predecessor auditor for some
necessary procedures;
➢ Any major issues discussed with management;
➢ The planned audit procedures to obtain sufficient appropriate audit
evidence regarding opening balances; (Ch 34)
➢ The assignment of firm personnel with appropriate levels of
capabilities and competence; and
➢ Other responses designed and implemented by the firm for first or
initial audit engagements. (Ch 37)

© Peter T. Y. Lau and Nelson C. Y. Lam

© Pilot Publishing Co. Ltd. 2021 Auditing and Assurance in Hong Kong
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