STANDARD NUMBER 2101 SUMMARY OF AMERICAN AUDIT

A SUMMARY OF AMERICAN AUDIT STANDARD NUMBER 2101 – THIS STANDARD DETERMINES REQUIREMENTS REGARDING AUDIT PLANNING. THE OBJECTIVE OF THE AUDITOR IS TO PLAN THE AUDIT THUS THE AUDIT IS CARRIED OUT EFFICENTLY. THE PARTNER RESPONSIBLE FOR THE CUSTOMER PORTFOLIO IS RESPONSIBLE FOR INVOLVEMENT AND EXECUTION OF THE AUDIT PLANNING.

Accordingly the partner responsible for planning the audit could request assistance from one of the members of the appropriate team involved in compliance with this responsibility. The members of the team responsible for communication with the customer helping the partner in planning the audit should also comply with the relevant requirements for this standard.

The auditor is required to plan the audit appropriately. This standard describes the responsibility of the auditor for correct planning of the audit.

Planning the audit includes determination of the overall audit strategy and development of the audit plan including in particular planned risk assessment procedures and planned responses to the risks for fundamental errors.

Planning is not a separate stage of the audit but rather a continuing process that could start shortly after (or in this context together with) completion of the previous audit and continues until the end of the current audit. The auditor is required to carry out the following actions at the beginning of the audit:

Execution of procedures in regard to the continued customer relations and the specific audit
Determination of compliance with the non-dependency and ethics requirements.
Foundation of understanding of the terms of communication with the audit committee pursuant to Audit Standard 1301 of the PCAOB – communication with audit committees.

The nature and the scope of the planning actions required are dependent on the size and the complexity of the company, the auditor’s previous experience with the company and changes to the circumstances occurring during the audit. At the time of development of the audit strategy and the audit plan, the auditors is required to assess whether the following issues, inter alia, are important for the company’s financial reports and the internal control for the financial reporting, and if so, how they impact on the auditor’s procedures: familiarity with the company’s internal control for financial reporting that was received during the other communications that were executed by the auditor; issues that impact on the industry in which the company operates, such as financial reporting procedures, financial terms, laws and regulations, and technological changes; matters relating to the company’s affairs, including organization, its activity characteristics, and its capital structure; the scale of the recent changes, if at all, on the company, its activity or its internal control on the financial reporting; preliminary determination by the auditor regarding the fundamentality, risk and audits integrated with other entities that relate to a fundamental weakness; defect of control that have been advised in the past to the audit committee or its management; legal or regulatory matters of which the company is aware; the type and scale of the available evidence relating to the efficacy of the internal control of the company in regard to financial reporting; preliminary determination regarding the efficacy of the internal control on the financial reporting; information about the company in the public domain relevant to the assessment of the probability for fundamental dishonesty in the financial reports; knowledge about risks relating to the company; the relative complexity of the company’s activity; more central accounting functions; comprehensive involvement by the senior management in the field of the daily activities of the business.

The auditor is required to determine an overall audit strategy determining the scale, the timing and the direction of the audit and he is required to instruct the Development as to the audit plan.

At the basis of the overall audit strategy, the auditor is required to take into account:

The reporting targets for the communications and the nature of the communication required by the PCAOB standards.
The significant factors in guidance of the activity of the communications team
Results of the preliminary communication activities and the auditor’s assessment of the importance of the issues
d. The nature, timing and scale of the resources required for execution of the communication.

The auditor is required to develop and document an audit plan that includes a description of:

The planned nature, timing and scale of the risk assessment procedures
The planned nature, timing and scale of the control tests and the substantive tests
Other planned audit procedures required for execution thus the communication will be consistent with the PCAOB standards

For the audit for the company’s financial reports with activity at numerous sites, the auditor is required to determined how many of the audit processes should be executed when choosing the locations or the business units in order to obtain suitable sufficient evidence in order to receive with reasonable security as to whether the consolidated financial reports are clear of a fundamental misleading presentation.

The auditor is required to change the overall audit strategy and the audit plan when necessary, in the event that the circumstances change significantly during the audit, including changes due to an amended assessment of the risks of fundamental dishonesty or discovery of an unidentified risk over and above the fundamental dishonesty.
STANDARD NUMBER 2101