Specific Independent Auditing Standard No.3 - Audit Planning

Specific Independent Auditing Standard No. 3 - Audit Planning Chapter 1 General provisions Article 1 This standard is prepared in accordance with the General Independent Auditing Standard to establish standards for Certified Public Accountants ("CPAs") on the preparation of audit plans in order to promptly and effectively perform an audit. Article 2 The term "audit plan" in this standard refers to a work plan, prepared by the CPA before performing detailed audit procedures, for completing an audit engagement of annual financial statements and achieving the expected audit objectives. Unless otherwise specified, CPAs should refer to this standard in performing audit work on other financial statements. Article 3 The audit plan includes the overall audit plan and the detailed audit plan. The overall audit plan gives guidance on the expected scope of the audit and the way to perform the audit tests. It is a comprehensive plan of what the CPA’s work basically involves throughout the whole process, from the acceptance of an audit engagement to the issuance of an audit report. The detailed audit plan is prepared based on the overall audit plan. It sets out a detailed description of the approach, nature, timing and extent of the audit procedures required in implementing the overall audit plan. Chapter 2 General principles Article 4 The audit plan should cover all stages of the audit. Throughout the audit the CPA should carry out the audit engagement according to the audit plan. Article 5 Before preparing the audit plan, the CPA should obtain an understanding of the following to determine the material matters that may affect the financial statements: (1) the annual financial statements; (2) any contracts, agreements, articles of association and the business license; (3) any minutes of important meetings; (4) the relevant internal control systems; (5) the structure and Organisation of the financial accounting function; (6) the plant, equipment and office premises; (7) macroeconomic conditions and their impact on the industry in which the entity operates; and (8) other important matters relevant to the preparation of the audit plan. Article 6 Before preparing the audit plan, the CPA should review the previous year’s audit files, paying attention to the following matters in relation to the previous year and should consider their impact on the audit work for the current period: (1) the type of audit opinion; (2) the audit plan and audit summary (3) any material audit adjustments; (4) any contingent losses; (5) any major management letter points; and (6) other relevant important matters. If the CPA accepts an engagement for the first time, he should consider whether to make enquiries of the preceding CPA about his audit working papers. Article 7 When preparing the audit plan, the CPA should pay particular attention to the following factors: (1) the purpose of the engagement, scope of the audit and audit responsibility; (2) the size of the entity and complexity of the entity’s business; (3) the results of the audit of the entity in prior years; (4) any changes in the operating environment and internal management of the entity during the audit period and their impact on the audit; (5) the entity’s ability to continue as a going concern; (6) the impact on the entity of any changes in the economic environment and industrial policies; (7) related parties and related party transactions; (8) the impact on the audit work from the recent promulgation of relevant laws and regulations by the State; (9) the accounting policies adopted by the entity and changes in those policies; (10) any use to be made of work performed by experts, internal auditors and other auditors; and (11) the professional competence and audit experience of the audit team members and the extent of their understanding of the circumstances of the entity. Article 8 When preparing the audit plan, the CPA should make an appropriate assessment of audit materiality and audit risk. Article 9 The CPA may discuss the major points of the overall audit plan and certain audit procedures with the entity’s relevant staff and make arrangements for the audit procedures in line with the work of these staff members. However, the independent preparation of the audit plan remains the responsibility of the CPA. Article 10 The audit plan should be presented to every member of the audit team before its implementation. Article 11 The CPA should promptly revise and supplement the audit plan to take account of changes in the audit circumstances. Any revision or additions to the audit plan should be agreed by the relevant persons in charge of the engagement in the accounting firm and should be recorded in the audit working papers. Article 12 The audit plan forms part of the audit working papers. Chapter 3 The contents and preparation of the audit plan Article 13 The basic contents of an overall audit plan should include: (1) the background of the entity; (2) objectives, scope and strategies of the audit; (3) material accounting issues and significant audit areas; (4) the timetable, the time required for and the budgeted cost of the audit work; (5) the composition of the audit team and the assignment of work; (6) the determination of audit materiality and the assessment of audit risk; (7) the use of the work of experts, internal auditors and other auditors; and (8) other relevant matters. Article 14 The detailed audit plan should include the following basic contents of individual items in the audit: (1) audit objectives; (2) audit procedures; (3) persons implementing the procedures and the date of implementation; (4) references to the audit working papers; and (5) other relevant matters. Article 15 The preparation of the detailed audit plan may be completed through the preparation of an audit programme. Article 16 The degree of complexity of the audit plan depends on the size of the entity and the complexity of the expected audit work. Chapter 4 The review of the audit plan Article 17 The audit plan should be reviewed and approved by the relevant persons in charge of the engagement in the accounting firm. Article 18 The following major matters concerning the overall audit plan should be reviewed: (1) whether the determination of audit objectives, audit scope and significant audit areas is appropriate; (2) whether the time budget is reasonable; (3) whether the way by which the audit team members were selected and the division of work are appropriate; (4) whether the extent of reliance placed on the entity’s internal control systems is appropriate; (5) whether the determination of audit materiality and assessment of audit risk are appropriate; and (6) whether the use of the work of experts, internal auditors and other auditors is appropriate. Article 19 The following major matters concerning the detailed audit plan should be reviewed: (1) whether the audit procedures can achieve the audit objectives; (2) whether the audit procedures are appropriate to the specific circumstances of the individual items in the audit; (3) whether the audit procedures for individual items . in significant audit areas are appropriate; and (4) whether the determination of the significant audit procedures is appropriate. Article 20 The opinion on the review and approval of the audit plan should be documented in the audit working papers. Chapter 5 Supplementary provisions Article 21 The Chinese Institute of Certified Public Accountants is responsible for the interpretation of this standard. Article 22 This standard takes effect from 1 January 1996.