Activity Based Risk Evaluation Model of Auditing

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Audit planning stage: planning:
Tactical planning

ACTIV- ITIES	STAGES
	CA/R	AP	CT	ST	OF
PL	SP	TP	OP	OP	OP
EG	PK	DK	EofO	EofM	CFS
EE	AR1	DR*2	DR*3	AR4	AR5
DM	A/R	AA	CR?	CAB	AO

Planning in the In the audit planning stage involves the determination of the criteria that will be used to determine the audit approach. It is tactical planning (or medium-term planning) as such plans could be subject to revision every year.

Auditors plan audit engagements for both new and continuing clients by determining an appropriate audit approach . Tactical planning thus requires the auditor to identify the factors that s/he will use to determine the audit approach, as well as to identify the relative emphasis that s/he intends to place on these factors. Factors auditors identify as part of the tactical plan include evaluating, for each account balance assertion, and where appropriate, underlying class of transaction:

• acceptable audit risk AR*₂,
• inherent risk IR₂,
• control risk CR₂
  (The relationship between the above three risk factors is the primary determinant of the audit approach.)
  The auditor also evaluates other factors such as staff availability, reliance on internal auditors, the need for experts, expected assistance from the client's management and staff, and the relative cost of gathering and evaluating evidence for alternative audit approaches.

After the auditor identifies these factors, and the relative emphasis that will be placed upon them, s/he records the details in the working papers as the tactical audit plan for the audit engagement.

The next step for the auditor in determining the audit approach, is to gather evidence in relation to each of the factors identified in the tactical plan. Auditors gather this evidence at the same time as they obtain a detailed knowledge of the client's business. Refer to the next activity.

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