Comprehensive Audit Strategy Report for Unite Group Plc - Semester 1

This report presents an audit strategy for Unite Group Plc, focusing on the application of International Standards of Auditing (ISA) 300, 320, and 520. It outlines the importance of audit strategy formulation and documentation, covering key aspects such as audit planning, materiality determination, and the use of analytical procedures. The report details the audit risk model, including inherent, control, and detection risks, and provides calculations for materiality based on Unite Group Plc's financial data. It further explores analytical procedures like ratio analysis, trend analysis, and reasonable tests to identify and assess the risk of material misstatements in financial statements. The report also includes a timetable for reporting and an audit budget, offering a comprehensive overview of the audit process and risk mitigation strategies for Unite Group Plc. Finally, the report provides an account head evaluation, auditing risks and steps for eliminating the risks.

Running head: AUDIT STRATEGY
Audit strategy
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Introduction................................................................................................................................2
Knowledge and Understanding of Audit Strategy Document as per ISA 300...........................2
Knowledge and Understanding of ISA 320 Materiality............................................................3
Knowledge and Understanding of ISA 520 Analytical Procedures..........................................4
Audit Risk..................................................................................................................................4
Calculation of materiality...........................................................................................................5
Analytical Procedure for Determining Risk of Audit................................................................6
Ratio Analysis............................................................................................................................6
Trend Analysis...........................................................................................................................6
Reasonable Tests........................................................................................................................7
Timetable for reporting..............................................................................................................9
Audit Budget............................................................................................................................10
Conclusion................................................................................................................................11
Reference..................................................................................................................................12

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Introduction
In today’s business organizations, auditing is considered as a major aspect. Under the
process of auditing, the responsibility of the auditors is to examine and inspect the financial
statements of the companies with the aim to find any material misstatements in them caused
by fraud and errors (Louwers et al. 2015). It needs to be mentioned in this context, it is on the
auditors to consider the formulation of a audit strategy before conducting the audit
procedures. After the formulation of audit strategies, the auditors are needed to document
them. In this whole process, the auditors are needed to comply with some specific standards
and regulations at the time to develop the audit strategy and to conduct the audit operations
(Knechel and Salterio 2016). There are three specific standards that the auditors are needed to
comply with; and they are International Standards of Auditing (ISA) 300 Planning and Audit
of Financial Statements, ISA 320 Materiality in Planning and Performing an Audit and ISA
520 Analytical Procedures. The main aim of this report is the development of the overall
audit strategy document for Unite Group Plc. For this reason, this report involves in the
analysis of the concepts of audit risks of the financial statements of the companies.
Knowledge and Understanding of Audit Strategy Document as per ISA 300
According to ISA 300, the main objective of the auditors is the effective planning of
the audit program with the aim to perform it in the effective manner (ifac.org 2018). ISA 300
puts some specific requirements on the auditors that they are needed to consider at the time of
auditing and they are discussed below.
As per ISA 300, it is the major requirement for the audit engagement partner as well
as other key members of the audit team to involve in the process of audit planning. After that,
the auditors are needed to undertake certain engagement activities prior to the audit

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engagement operations. They are the to perform the procedures as stated in ISA 220 related
to the continuance of the relationship of the clients; to evaluate the compliance with the
required ethical standards like audit independence and others; and to establish an
understanding about the required terms of audit engagement as per ISA 210 (ifac.org 2018).
After that, according to ISA 300, the need for the auditors is to formulate an audit
strategy including scope, timing as well as direction of the audit process. Some specific
aspects that the auditors are needed to consider; they are identification of the engagement
characteristics; ascertainment of the objectives of reporting in the audit process, consideration
of the crucial factors that can affect the audit judgments and others (ifac.org 2018). After the
development of the audit strategy, ISA 300 puts the obligation on them to document them. In
this document, the auditors are needed to include certain aspects like the overall audit
strategy, the audit plan and any significant changes in the audit engagement process during
the engagement time. Lastly, the auditors are needed to consider some additional aspects like
the requirements as per ISA 220, communication with the previous auditors and others
(ifac.org 2018).
Knowledge and Understanding of ISA 320 Materiality
As per ISA 320, it is the objective of the auditors for the application of the concept of
materiality in effective manner while planning and performing audit. According to the
concept of materiality in ISA 320, materiality is considered as an amount set by the auditors
at less than the materiality level of the financial statements with the aim to reduce the
probability that the amount would not affect the financial statements of the companies
(ifac.org 2018).
There are some specific requirements in ISA 320 that the auditors are needed to
follow while determining materiality. As per ISA 320, it is needed for the auditors to

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determine the materiality of the financial statements as a whole at the time of audit process
(ifac.org 2018). After that, the need for the auditors is to revise the level of materiality as a
whole at the time of audit procedures. Lastly, as per ISA 320, the auditors are needed to
include some specific aspect in the audit document such as materiality amount of the
financial statements, performance materiality and any revision in materiality while
conducting audit (ifac.org 2018).
Knowledge and Understanding of ISA 520 Analytical Procedures
As per ISA 520, the objective of the auditors is to obtain reliable and relevant audit
evidence at the time to use substantive analytical procedures; and to design as well as
perform analytical procedures at the near to the audit process (ifac.org 2018).
As per ISA 520, at the time to design and perform substantive audit procedures, the
auditors are needed to determine the suitability of that specific substantive audit procedure
with the provided audit assertion by considering the risk, to evaluate data reliability and to
determine the amount of differences. After that, as per ISA 520, the auditors are majorly
responsible for the investigation of the results of the audit analytical procedures in case there
is major fluctuation in the amounts (ifac.org 2018).
Audit Risk
Audit risk can be considered as the risks that can be encountered while performing the
audit procedures. The audit risk model is shown below:
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Inherent Risk: Inherent risk is regarded as the risk of material misstatements in the financial
statements and it occurs as a result of omission or errors. The auditors consider this risk as

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higher when the presence of high degree of judgment and estimation can be seen in the
financial transactions (Botez 2015).
Control Risk: Control risk is considered as the material misstatement risk in the financial
statements and it arises as a result of the absence or failure in the internal control of the
business organizations. In order to prevent this risk, the auditors are needed to have effective
internal control within the organizations (Goh, Krishnan and Li 2013).
Detection Risk: Detection is the kind of audit risk that occurs due to the failure of the
auditors to detect the material misstatements in the financial statements. This risk needs the
application of effective audit procedures to be detected and prevented (Chan and Vasarhelyi
2018).
Calculation of materiality
Auditors set the level of materiality on the financial statements as the whole at the
stage of planning itself. While computing the materiality 3 key steps are followed – (i)
selecting appropriate benchmark (ii) determining the level of benchmark usually in
percentage term and (iii) justifying choice (Bentley-Goode, Newton and Thompson 2017).
Various benchmark considered for computing the materiality are –
 Profit before tax – 5% of profit before tax
 Total revenue – 1% of revenue
 Net asset – 2% of net assets (Icaew.com 2018).
From the annual report of Unite Group Plc, it can be found that the materiality level
for the company will be as follows –
 Profit before tax – (£ 229.4 * 5%) = £ 11.47 million
 Total revenue – (£ 119.3 * 1%) = £ 1.19 million

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 Net asset – (£ 1,754.20 * 1%) = £ 17.54 million
Generally materiality level is set at amount that is highest among the above. Hence,
the materiality level for Unite Group Plc will be at £ 17.54 million. However, irrespective of
the amount involved some of the accounts are always considered for material misstatement as
they are susceptible to misstatement, fraud or errors. These accounts are revenue, cash,
inventories, trade receivable, trade payables and borrowing (Christensen et al. 2016).
Analytical Procedure for Determining Risk of Audit
The analytical procedure is performed by an auditor to identify and assess the risk of
material misstatement present in the financial statement along with the level of assertions.
Audit opinion is based on the audit evidences.
The analytical procedures are of different types.
Ratio Analysis
Auditors use ratio analysis while auditing the financial components in order to
compare ratios for the present year with the ratios of the previous area. If the auditor finds the
material difference in the ratio that has been calculated shall be explained with the valid
reason justifying the change. (Alzeban and Sawan 2013).
Trend Analysis
Trend analysis the comparison of the balances in the current year with previous
year .to perform the trend analysis the auditor has the two approaches that is casual and
diagnostic. Under diagnostic approach is regarded for evaluating the balance of a current
account diverges meaningfully from the drift recognized in the preceding year's balances for

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that item. Under casual approach, the auditor computes a balance predictable for the account
then associated to the definite sum. For Unite Group PLC trend analysis is used.
Reasonable Tests
Non-financial data in regard of the current period is used in order to compute an
predictable amount for the balances of items. This procedure does not require the data of
previous events instead of this it uses data those are operating in nature in that period in
consideration of audit. This is suggested and is more applicable for the components of
income statements as it is easier to collect data for the current period in order to collect for
the previous year. This amount that is collected is used in order to check the reasonability of
the account in audit process.
The below table describes the process of eliminating the risk by identifying the audit risk of
common accounts head.
Account
Head
Evaluation/
Analysis
Auditing Risks Steps for Eliminating Risks
Accounts
Receivables
The amount under
this is due to the
company by the
clienteles and
consumers of the
company. The
amount represents
the figure that is
being outstanding
and is yet to be
received by the
The company operation and
goods are retailed under the
outstanding basis of sales
methodology to its
clienteles. (Sadgrove,
2016).
The business risk of the company
is high the auditor need to
cautiously reconsider the total of
sales and the amount of debtors
that are being identified. The
auditor needs to sensibly identify
dissimilar apparatuses of the
account and deliver materiality
concerning the identical.

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company.
Account
Balance
Amount
£
Assertion(s) Audit
Procedure
Audit Evidence
Cash and
cash
equivalents
51.20  Existence-
occurs in the
balance
period.
 Completene
ss-all
objects
related to
cash are
recorded as
on balance
period.
Ask and check
the
confirmations
from banks.
2. Accept tests
of bank
reconciliations
and trail-up
integration
item.
Bank Validation
credential are
collected from the
Bank (Document).
Obtain Xerox copies
of customer’s bank
reconciliations
(Document).
Investigation and
proceedings of
incorporation item
(oral)
Inventories 4.50 Accuracy- the item is
specifically recorded
as on the balance
date.
check the
bookings and
inventory flow.
Inventory records to
be verified with the
inventory ledger.
Accounts
Receivables
82.90 Accuracy- the item is
recorded correctly by
the accountant.
Request for the
bills and
summarize the
figures from
the
administration
of the
Check the bills of the
receivables.
( Document and oral)
Double-checked the
earlier imbursement
received. (Document
and oral)

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company.
Trade and
other Payable
152.10 Accuracy- the
element is logged
appropriately
Demand for the
bills and record
of the totals
from the
organization of
the corporation
Inspect the earnings
of the payables.
( Document and oral)
Double-checked the
previous
imbursement made.
(Document and oral)
Borrowings 511.50 Accuracy- the figure
logged is precise as
on the balance day.
Petition for the
evidences of
the deal
detailed made
against the
element.
Censoriously
inspects the papers
presented.(Document
and oral)
Timetable for reporting
The report prepared by the auditors of Unite group Plc is usually reported at the end
of every financial year. However, the unaudited reports are prepared and published by the
reporting entities in every quarter months or published in the half yearly financial report
(Cohen, Krishnamoorthy and Wright 2017). On the basis of the audit report prepared for the
current year ending mentions that there are no inconsistencies and misstatements that is
regarded material in respect of the financial statements as a whole. Auditors discuss the areas
with risk of material misstatement in the absence of management of organization by holding
private meeting at each committee meeting. However, for the year ended 2017 the audit of
the company has been carried out Deloitte and the report were signed on 21st February 2018
(Unite-group.co.uk 2018).

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Audit Budget
The auditing of budget is prepared for examining the process of budgeting. Through
audit`s budget it can be concluded that the budget process is operating efficiently. This also
evaluates the effort of budget. The audit budget helps in evaluation of techniques, procedures
and how much the budget is effective. The audit budget shall be dynamic in nature. The
budget audit shall be conducted after every two to three years. This budget audit shall be
conducted by an independent individual but not by those who are a part of budgeted staff.
After the plan of audit budget, auditor shall inform to the upper level of management for
accurate action. The plan of audit helps us to analyze the areas that need corrections. The
budget audit contemplates
 Revision of budget.
 Level of adequacy of analyzing costs
 Trend of cost and control
 Classification and identified of costs
 Flexibility of budget allowances
 Completeness of records, schedules and documentation of budget
 Grade of involvement by staffs and managers
 Class of data used for support (Rahman et al. 2016).
As the materiality level for the company is set at £ 17.54 million, it can be stated that
the level is low. It will lead to more number of items to be checked from the income
statement and balance sheet of the company. With increasing number of items the budget of
the company for audit will also go up (Abbott et al. 2016). Based on the materiality level of
Unite group Plc audit budget will be as follows –
Particulars Percentage Amount
Total 100% £ 22.50

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Planning matters 18% £ 4.05
Audit working file operation 12% £ 2.70
General procedure 10% £ 2.25
Checking for materiality 20% £ 4.50
Performing analytical review 24% £ 5.40
Final audit 8% £ 1.80
Preparing and presenting the report 8% £ 1.80
Total 100% £ 22.50
Conclusion
From the above analysis it can be concluded that the strategy of Audit in general
refers to the audit approach combination that is to be utilised in company. It includes the
system of timing and allocation of audit and the audit management process. The audit
strategy also assesses the knowledge that is gained by the auditors along with the outcomes,
whether the pre analytical reviews are consistent. The process in general takes place with the
comparison between the knowledge of the auditors that is obtained normally with the
association with the management and understanding the nature of the same. In order to follow
the detailed explanation of audit strategy and the process in which the audit strategy is to be
maintained, the audit must be based on ISA 300. Further, as per the analysis carried on above
and level of materiality, it can be stated that various accounts those need special attention are
revenue, cash, inventories, trade receivable, trade payables and borrowing. Moreover, it is
found that on the basis of the items selected for material misstatement analysis total budget
for the audit will be amounted to £ 22.50 million. Hence, it can be stated that audit planning
forms major part for carrying out the audit appropriately.

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