Annual Audit Manual
COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.
4051 Changes to the audit strategy and plan
Dec-2023
In This Section
Reasons why risk assessment may change
Reasons why planned direction, supervision and review may change
Update the plan and strategy throughout the audit
CAS Requirement
If the auditor obtains new information which is inconsistent with the audit evidence on which the auditor originally based the identification or assessments of the risks of material misstatement, the auditor shall revise the identification or assessment (CAS 315.37).
CAS Guidance
During the audit, new or other information may come to the auditor’s attention that differs significantly from the information on which the risk assessment was based (CAS 315.A236).
|
Example: The entity's risk assessment may be based on an expectation that certain controls are operating effectively. In performing tests of those controls, the auditor may obtain audit evidence that they were not operating effectively at relevant times during the audit. Similarly, in performing substantive procedures the auditor may detect misstatements in amounts or frequency greater than is consistent with the auditor's risk assessments. In such circumstances, the risk assessment may not appropriately reflect the true circumstances of the entity and the further planned audit procedures may not be effective in detecting material misstatements. Paragraphs 16 and 17 of CAS 330 provide further guidance about evaluating the operating effectiveness of controls. |
An audit of financial statements is a cumulative and iterative process. As the auditor performs planned audit procedures, the audit evidence obtained may cause the auditor to modify the nature, timing or extent of other planned audit procedures. Information may come to the auditor’s attention that differs significantly from the information on which the risk assessment was based. For example (CAS 330.A62):
-
The extent of misstatements that the auditor detects by performing substantive procedures may alter the auditor’s judgment about the risk assessments and may indicate a significant deficiency in internal control.
-
The auditor may become aware of discrepancies in accounting records, or conflicting or missing evidence.
-
Analytical procedures performed at the overall review stage of the audit may indicate a previously unrecognized risk of material misstatement.
In such circumstances, the auditor may need to reevaluate the planned audit procedures, based on the revised consideration of assessed risks of material misstatement and the effect on the significant classes of transactions, account balances, or disclosures and their relevant assertions. CAS 315 contains further guidance on revising the auditor’s risk assessment.
CAS Requirement
The engagement partner shall determine that the nature, timing and extent of direction, supervision and review is responsive to the nature and circumstances of the audit engagement and the resources assigned or made available to the engagement team by the firm (CAS 220.30(b)).
CAS Guidance
Identification of changes in the engagement circumstances may warrant re-evaluation of the planned approach to the nature, timing or extent of direction, supervision or review. For example, if the assessed risk of material misstatement at the financial statement level increases because of a complex transaction, the engagement partner may need to change the planned level of review of the work related to the transaction (CAS 220.A96).
In accordance with paragraph 30(b), the engagement partner is required to determine that the approach to direction, supervision and review is responsive to the nature and circumstances of the audit engagement. For example, if a more experienced engagement team member becomes unavailable to participate in the supervision and review of the engagement team, the engagement partner may need to increase the extent of supervision and review of the less experienced engagement team members (CAS 220.A97).
OAG Guidance
Some examples of circumstances where a change in planned direction and supervision of the engagement team and the review of their work may be necessary include the following, among others:
-
A revision to the audit strategy and/or plan based on new information.
-
The presence of impediments to the exercise of professional judgment (e.g., lack of cooperation or undue pressure imposed by management may result in more experienced members of the engagement team becoming involved when dealing with members of management who are difficult or challenging to interact with).
-
Discrepancies in accounting records, or conflicting or missing evidence may lead the engagement leader to determine that it would be appropriate to involve certain IT or other specialists to assist the engagement team.
-
A change in the availability or composition of the engagement team because of significant time delays or changes to engagement timelines may impact the assignment of review responsibilities and the timing of when the reviews were planned to occur.
CAS Requirement
The auditor shall update and change the overall audit strategy and the audit plan as necessary during the course of the audit (CAS 300.10).
CAS Guidance
As a result of unexpected events, changes in conditions, or the audit evidence obtained from the results of audit procedures, the auditor may need to modify the overall audit strategy and audit plan and thereby the resulting planned nature, timing and extent of further audit procedures, based on the revised consideration of assessed risks. This may be the case when information comes to the auditor’s attention that differs significantly from the information available when the auditor planned the audit procedures. For example, audit evidence obtained through the performance of substantive procedures may contradict the audit evidence obtained through tests of controls (CAS 300.A17).
OAG Guidance
Circumstances necessitating revisions to the planned direction and supervision of engagement team members and review of their work may arise during the audit. Such revisions will often result from project management considerations (e.g., to accommodate a delay in the client providing certain information or sickness of a team member). Consideration of whether such revisions represent significant changes to the planned direction, supervision and review is a matter of professional judgment and is discussed below in the block “Significant changes to the strategy and plan’’.
CAS Requirement
The auditor shall include in the audit documentation any significant changes made during the audit engagement to the overall audit strategy or the audit plan, including significant changes to the nature, timing and extent of the planned direction and supervision of engagement team members and the review of their work, and the reasons for such changes (CAS 300.12(c)).
CAS Guidance
A record of the significant changes to the overall audit strategy and the audit plan, and resulting changes to the planned nature, timing and extent of audit procedures, explains why the significant changes were made, and the overall strategy and audit plan finally adopted for the audit. It also reflects the appropriate response to the significant changes occurring during the audit (CAS 300.A21).
Documentation of the direction and supervision of engagement team members and the review of their work in accordance with CAS 220 may also provide a record of significant changes to the planned nature, timing and extent of the direction, supervision and review (CAS 220.A22).
OAG Guidance
Significant changes to the audit strategy and plan are reflected in the audit working paper software as relevant and appropriate.
A significant matter may also be necessary, depending on the nature of the change, to record the reason for and response to the change, and evidence of the engagement leader’s approval of the change in a timely manner.
What constitutes a significant change to the plan?
Where there are minor changes in the controls or substantive procedures compared to the original plan, it is sufficient to add the new procedures and/or delete the procedures not performed. Where the engagement team has documented how it expects to obtain evidence over relevant financial statement assertions, the addition or deletion of one or two procedures does not constitute a significant change. Rather, if there is a change in the overall testing strategy of a significant FSLI or we change our determination of whether a material FSLI is significant, particularly if significant judgment is involved in how to respond to the change, the change is regarded as a significant change.
A significant reassessment after planning sign-off of the risk of material misstatement at either the financial statement or FSLI level, and consequently of the nature, timing and extent of testing, could require a significant change in the strategy or plan, for example:
-
The team may discover a material misstatement in the financial statements in an area not previously assessed as a significant risk, causing a significant reassessment of the risk assessment and responsive audit approach.
-
A new significant risk is identified causing the engagement team to significantly change the planned approach to testing.
-
The engagement team’s expectation to place high or partial reliance on controls for one or more material FSLIs or business processes is found to be unrealistic, because controls are either less effective or ineffective, causing a change to the audit strategy and plan so that most, if not all, of the evidence will now be obtained from substantive testing.
-
A new transaction may have occurred during the year, or a significant increase in transactions in a certain area, which results in a change in approach to the audit strategy and plan.
Just because new information causes the team to make an adjustment to its risk assessment, does not mean that a significant change to the audit plan has been made. Whether a reassessment of risk is considered to be significant depends on the complexity and magnitude of the circumstances underlying the change. For example, a decrease in the assessed level of inherent risk and a corresponding reduction in the planned level of evidence to be obtained would not normally need to be treated as a significant change in the audit plan. A significant change in the planned approach to obtaining evidence would, however, be significant and warrant explicit documentation. We typically inform the engagement leader of changes made to our initial risk assessment, but the extent of the engagement leader’s review will depend on the significance of the matter. The engagement leader determines, as part of the completion sign-off, whether the audit plan is still appropriate to address the identified and assessed risks of material misstatement.
When changes are made to the assessed level of risk, consider the impact on the nature, timing and extent of planned audit procedures along with the planned responsibilities for direction, supervision and review and make and document changes as appropriate.
When changes are made to the planned controls reliance, consider the impact on the nature, timing and extent of planned substantive procedures and make changes as appropriate. If the change is the result of identified control deficiencies, accumulate these deficiencies as issues (CD/W) in the audit working paper software for further evaluation.
Significant changes to the nature, timing and extent of planned direction, supervision and review
Indicators that changes to planned direction, supervision and review may be significant include:
-
A significant change to the audit strategy or plan has been identified. For example, if a new significant risk is identified causing the engagement team to significantly change the audit response to the risk, this may also require a change to the planned direction and supervision of the engagement team members assigned to perform the work and may also necessitate a change in the plan for who will review their work. Such changes to the direction, supervision and review plan would ordinarily be considered significant.
-
A significant human resource change occurred. For example, if an experienced member of the engagement team with supervision and/or review responsibilities becomes unavailable, or new resources (particularly resources with specialized knowledge) need to be added to the engagement based on changes in engagement circumstances, the associated changes to the direction, supervision and review plan would ordinarily be considered significant.
Changes to the planned direction, supervision and review may be discussed by the engagement team as part of "taking stock" meetings. Holding "taking stock" meetings provide an opportunity for the engagement leader and other experienced engagement team members to provide direction and supervision to other engagement team members throughout the audit engagement as required by CAS 220. Recording details of "taking stock" meetings, whether in the form of minutes or less formal documentation, provides an effective way to evidence the engagement leader's direction and supervision of the engagement team throughout the audit, and in this case, would provide a record of the nature, timing and extent of change(s) made. Documentation considerations for "taking stock" meetings are discussed in OAG Audit 7022
OAG Guidance
Where there are significant changes to the audit strategy and audit plan, record the nature of the change. At a minimum document:
-
The revised approach
-
An explanation of why it was necessary to change the approach, covering the events, conditions or results of audit procedures that resulted in the change.
Documentation of a significant matter may also be required, depending of the nature of the change, to record the reason for and response to the change (see OAG Audit 1141 for further guidance).
In addition, if documentation of significant matter is created, the engagement leader reviews and clears that too (see OAG Audit 1143 for further guidance).