6.4 Contents of audit planning memorandum/ overall plan

An audit planning memorandum, also known as an overall audit plan, is a document that outlines the key elements and considerations for conducting an audit engagement. While the specific contents may vary depending on the nature and complexity of the audit, the following are some common components typically included in an audit planning memorandum:

1. Introduction: Provide an overview of the audit engagement, including the client’s name, period covered by the audit, and key contact persons from the client’s management team.
2. Objectives: Clearly state the objectives of the audit engagement, such as expressing an opinion on the fairness of the financial statements or assessing compliance with regulatory requirements.
3. Scope: Define the scope of the audit, outlining the areas and accounts to be audited and any specific limitations or exclusions. Also, mention any specialized or expert assistance that may be required during the audit.
4. Audit Approach: Describe the planned audit approach, which may include a combination of substantive testing and reliance on internal controls. Specify whether the audit will be conducted using a risk-based approach or a more controls-focused approach.
5. Materiality: Define the materiality threshold that will be used to assess the significance of identified misstatements and determine the level of assurance required. Explain how materiality will be applied throughout the audit process.
6. Risk Assessment: Summarize the key risks identified during the risk assessment process, including inherent risks, control risks, and detection risks. Highlight the areas or accounts with higher risks that will receive increased audit attention.
7. Internal Control Considerations: Discuss the evaluation of the client’s internal controls over financial reporting, including any significant control deficiencies or weaknesses identified. Outline the planned reliance on internal controls and the extent of testing required.
8. Audit Procedures: Provide an overview of the planned audit procedures, including the nature, timing, and extent of testing for each significant account or area. Specify the sampling methods to be used, if applicable, and any specific audit tools or techniques that will be employed.
9. Staffing and Resources: Identify the members of the audit team and their respective roles and responsibilities. Describe the expertise or skills required for the audit engagement and ensure that the necessary resources are allocated accordingly.
10. Timelines and Milestones: Establish a timeline for the audit engagement, including key milestones, deadlines for fieldwork, and completion of audit deliverables. Consider any regulatory filing requirements or reporting deadlines.
11. Communication and Coordination: Outline the communication channels and protocols between the audit team and the client’s management, audit committee, or other relevant stakeholders. Specify the frequency and content of progress meetings or status updates.
12. Documentation: Highlight the importance of documentation in the audit process and provide guidance on the types of audit documentation to be maintained, such as working papers, analytical procedures, and audit evidence.
13. Quality Control: Explain the quality control measures to be implemented during the audit engagement to ensure compliance with auditing standards and the firm’s policies and procedures.
14. Conclusion: Summarize the key points and reiterate the overall objectives and approach of the audit engagement. Mention any additional considerations or specific client requirements.