PNK & Associates, Chartered Accountants, were appointed as statutory auditors of Gala Telecom Limited for the financial year ended 31st March,…

CA Intermediate · Auditing and Ethics · MTP · September 2026
PNK & Associates, Chartered Accountants, were appointed as statutory auditors of Gala Telecom Limited for the financial year ended 31st March, 2026. While establishing the overall audit strategy, the engagement partner carried out preliminary engagement activities relating to continuance of client relationship, compliance with ethical requirements and assessment of independence of the audit team. Further, the engagement partner also considered information obtained during a GST compliance review and internal control certification assignment earlier performed for the same company, as such knowledge was considered relevant for planning the statutory audit. During these assignments, certain weaknesses relating to fixed assets capitalization and authorization of employee reimbursement claims had been noticed. The engagement partner instructed the audit team to maintain a questioning mind and exercise professional skepticism while gathering and evaluating audit evidence. Further, considering the higher risk of material misstatement in certain areas, experienced audit team members were assigned to those areas and additional audit time and resources were allocated for detailed verification procedures. In the context of establishing the overall audit strategy, explain the factors that the auditor should consider with respect to: (i) the results of preliminary engagement activities and the relevance of knowledge gained from other engagements performed for the entity by the engagement partner; and (ii) the nature, timing and extent of resources necessary to perform the audit engagement.

Suggested Answer and Working Notes:

Among the various factors to be considered by the auditor while establishing audit strategy, the following are relevant in the given case: (i). Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained on other engagements performed by the engagement partner for the entity is relevant. Examples are listed as under: - (1) Results of previous audits that involved evaluating the operating effectiveness of internal control, including the nature of identified deficiencies and action taken to address them. (2) The manner in which the auditor emphasizes to engagement team members the need to maintain a questioning mind and to exercise professional skepticism in gathering and evaluating audit evidence. (ii) Ascertain the nature, timing and extent of resources necessary to perform the engagement. Selection of engagement team and assignment of audit work to team members is a significant factor in establishing overall audit strategy. Experienced team members may be assigned in areas where there is higher risk of material misstatement. Similarly, engagement budgeting and devotion of more time to areas of higher risk of material misstatement are to be kept in mind. In the given case of Gala Telecom Limited, the auditor while establishing audit strategy should consider the results of preliminary engagement activities and relevant knowledge obtained from other engagements performed for the same entity. Further, maintaining professional skepticism and allocating experienced audit personnel and adequate audit resources to high-risk areas would help the auditor conduct the audit effectively and address risks of material misstatement appropriately.

Topics: Audit Strategy, Audit Planning and Audit Programme

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