A new manufacturing client lands on your desk. Your senior asks whether to start with receivables tests or inventory observation. The right answer is neither, you write the strategy first.
AU-C 300, Planning an Audit, requires you to establish the overall engagement strategy before performing risk assessment procedures. Without one, teams over-audit low-risk areas and miss the high-risk ones.
KEY: Strategy answers three questions. What is the scope? When does each major activity happen? Who does what? Procedure-level decisions (NTE) come later in the audit plan.
The strategy sets scope, timing, and direction. Scope defines what the engagement covers (reporting framework, locations, service organizations, special-procedure segments). Timing sequences the work (interim vs. year-end, inventory observation, confirmation timing, deadlines). Direction sets audit emphasis (which assertions matter most, where significant risks concentrate, preliminary materiality, specialist needs).
HIGH-FREQUENCY: Strategy = scope, timing, direction. Audit plan = nature, timing, extent (NTE) of specific procedures. The exam tests this distinction directly.
Confirm the framework and which auditing standards apply.
Common mistakes
- Confusing SDT with NTE. Strategy is scope/timing/direction. Plan is nature/timing/extent. An answer listing specific procedures (confirmations, observations) is the plan. Trap: question says "strategy," correct choice describes procedures.
- Skipping the reporting framework determination. Strategy starts with GAAP vs. IFRS vs. special purpose, plus AICPA vs. PCAOB vs. GAGAS. Trap: assuming US GAAP for a foreign-owned private company that prepares IFRS for the parent.
- Treating preliminary materiality as final. It is revised when actuals diverge. Trap: keeping the original $3.4 million after a 9% revenue shortfall instead of recomputing.
Bottom line
- AU-C 300 requires an overall engagement strategy that sets scope, timing, and direction before risk assessment begins
- Strategy (scope, timing, direction) is distinct from the plan (nature, timing, extent); specific procedures belong to the plan
- Inputs include the reporting framework (GAAP, IFRS, special purpose) and applicable standards (AICPA vs. PCAOB vs. GAGAS)
- Special reporting needs (Single Audit, comfort letters, going concern) drive timing and resources; federal awards above the threshold trigger a Single Audit
Exam shortcut
When a question asks what is in the overall engagement strategy, the answer is scope, timing, and direction, never specific procedures. If a choice lists specific test procedures, that is the audit plan. If a choice describes the reporting framework, materiality benchmark, team assignment, or significant risk identification, that is the strategy. Remember: Strategy = SDT (Scope, Direction, Timing). Plan = NTE (Nature, Timing, Extent). The strategy guides the plan.
The full lesson (about 3,828 words, 26 min read) adds 8 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.A1
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