Acca aaa s21 Notes

September 2021 to June 2022 exams
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2.3. Planning activities
To perform an audit in an effective matter, the auditor must establish the 
overall audit strategy
(sets 
out the scope, timing and direction of the audit) and develop an audit plan. The 
audit plan
describes 
the nature, timing and extent of:
๏
Risk assessment procedures (ISA 315 
Identifying and Assessing the Risks of Material Misstatement
)
๏
Further audit procedures at the assertion level (ISA 330 
The Auditor’s Response to Assessed Risks
)
Both the strategy and the plan should be updated, as necessary, as the audit progresses and the 
strategy, plan and significant changes must be included in the 
audit documentation
.
3. Understanding the entity
In order to identify and assess the risks of material misstatement, the auditor must obtain an 
understanding of:
๏
the entity;
๏
its environment;
๏
the applicable financial reporting framework; and 
๏
system of internal control.
3.1. Required understanding
๏
Nature of the entity.
We have to understand the nature of the entity. For example, we simply 
have to understand what it does: is it in a financial sector, the retail sector, the manufacturing 
sector? This may seen trivial but it may help you to think of a new audit client. You can often tell 
very little from the name of the client. You have to go and find out about the entity itself.
๏