During Planning phase, what does the auditor do?

• A. The auditor gains an understanding of the auditee and designs the audit plan
• B. The auditor evaluates the effectiveness of internal controls
• C. The auditor performs substantive testing
• D. The auditor prepares the audit report

Answer: (A)

During planning, the main aim is to gain a solid understanding of the auditee and to design the audit plan around that understanding. This means learning about the organization, its environment, processes, and internal controls, so the auditor can identify where there are significant risks and which areas require more attention. With that knowledge, the auditor sets the scope, objectives, and approach for the engagement, determines materiality thresholds, and develops the overall plan and procedures to address the identified risks. This planning lays the groundwork for what the audit will focus on and how the work will be performed.

The other activities—evaluating internal controls, performing substantive testing, and preparing the audit report—occur after planning, during fieldwork and the later stages of the engagement.