What is an Audit Strategy?

An audit strategy sets the direction, timing, and scope of an audit. The strategy is then used as a guideline when developing an audit plan. By developing an audit strategy, it is easier to create a more targeted audit plan, thereby wasting less time in total during the planning phase of an audit. The strategy document usually includes a statement of the key decisions needed to properly plan the audit. The audit strategy is based on the following considerations:

The scope of the engagement
The characteristics of the engagement
Reporting objectives
Timing of the audit
Nature of communications
Significant factors in directing engagement team efforts
The results of preliminary engagement activities
The knowledge gained on other engagements
The nature, timing, and extent of resources available for the engagement

The audit strategy could be relatively short for the audit of a smaller entity, perhaps in the form of a brief memo. If there are unexpected changes in conditions or the outcome of audit procedures, it may be necessary to alter the audit strategy. If there is an alteration, the reasons for the alteration should be stated in the accompanying documentation.

What are the Four Audit Strategies?

There are four types of audit strategies, which are based on the balance sheet, control systems, risks, and substantive procedures. More specifically:

Balance sheet audit strategy. For this strategy, the auditor examines all balance sheet account balances, in the belief that all other accounts flush out through these accounts.
Controls systems strategy. For this strategy, the auditor tests a client’s system of internal controls to see if it functions properly.
Risk-based audit strategy. For this strategy, the auditor conducts risk evaluations, in order to spot all potential risks of financial statement misstatement.
Substantive procedures audit strategy. For this strategy, the auditor reviews accounts with high transaction values and large transaction volumes, on the assumption that these accounts are the most likely to be misstated in the financial statements.

The Difference Between an Audit Strategy and Audit Plan

An audit plan states the detailed steps to be followed in the conduct of an audit. The plan includes risk assessment procedures, as well as additional procedures to be followed based on the outcome of the risk assessment. The key differences between an audit strategy and an audit plan are as follows:

Level of detail. The audit plan is much more detailed than the strategy document, since the plan states the nature, timing, and extent of the specific audit procedures to be conducted.
Purpose. The audit strategy sets the direction of an audit, while the audit plan converts the strategy into specific actions.
Scope. The audit strategy is quite general, while the audit plan describes detailed procedures and timelines.
Timing. The audit strategy is created early in the audit process, while the audit plan always follows the audit strategy.