Page 54 - CA Final PARAM Digital Book.

cost of raw material consumed & cost of stores and spares. There was nothing in his working papers
showing understanding of nature of business of company. What does it reflect upon planning of audit by
CA P?
Answer SA 300 requires the auditor to plan the audit in such a manner that it is performed effectively. It also
requires auditor to establish overall audit strategy including identifying the characteristics of the

engagement, facilitating him to define its scope and planning of nature, timing and extent of audit
procedures required to be performed to achieve the objective of audit.
SA 300 further requires the auditor to document the overall audit strategy, the audit plan and any
significant changes made during the audit engagement to such plans.

In the given situation, auditor didn’t even once visit the company and failed to understand about business
of the company. Therefore, he has flouted requirement of SA 300 to plan the audit in such a manner that it
is performed effectively. The auditor has to plan the audit commensurate to the nature and complexity of
the business of the entity and identify and assess the risk of material misstatement.

Further, working papers of auditor also do not show his understanding of nature of business which is again
a blatant violation of requirement of SA 300 which requires the auditor to document the overall audit
strategy, the audit plan and any significant changes made during the audit engagement to such plans.

Inclusion of a checklist in working papers having requirement of test checking of cost of raw material
consumed & cost of stores and spares shows that it was a general checklist and specifics of business were
never understood and audit was not planned to be conducted in an effective manner in accordance with
requirements of SA 300.

QNO Benefits of Planning
30.320 TITANIUM CNO—APSE.040 Old Course –(N18R, M21E)
BSA & Company, Chartered Accountants are duly appointed auditors of ASB LTD engaged in
manufacturing of various FMCG products and having its manufacturing facilities spread across India.
Senior partner CA B has called meeting of audit staff to plan the conduct of audit for the year 2017-18
and at the meeting he addresses as under:
“SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with
Standards on Auditing”, states that to achieve the overall objectives of the auditor, the auditor shall use
the objectives stated in relevant SAs in planning and performing the audit. Without a careful plan, the
overall objective of an audit may not be achieved. The audit planning is necessary to conduct an

effective audit in an efficient and timely manner”.

In view of above, you are required to analyse and explain the benefits of Planning in an Audit of Financial
Statements.
OR
Planning an audit involves establishing the overall audit strategy for the engagement and developing an
audit plan. Adequate planning benefits the audit of financial statements in several ways. Briefly discuss
the usefulness of careful and adequate audit planning.
Answer SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with
Standards on Auditing” states that to achieve the overall objectives of the auditor, the auditor shall use the
objectives stated in relevant SAs in planning and performing the audit. Without a careful plan, the overall
objective of an audit may not be achieved. The audit planning is necessary to conduct an effective audit in
an efficient and timely manner.
➢ Benefits/Advantages of Planning in an Audit of Financial Statements
Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan. Adequate planning benefits the audit of financial statements in several
ways described hereunder-

• Attention to Important Areas - Planning would help the auditor to devote appropriate
attention to important areas of the audit.
• Timely resolution of Potential Problems - It would also help the auditor identify and
resolve potential problems on a timely basis.

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