Before accepting a new client or continuing an existing audit relationship, the auditor must assess client integrity, verify firm independence, and confirm that the firm has the necessary time and resources.

Once accepted, an Engagement Letter (ISA 210) is signed. This forms a legal, binding contract between the auditor and the client, documenting the objective and scope of the audit, managerial responsibilities (preparing statements and maintaining internal controls), and the auditor’s responsibilities.

The auditor must perform risk assessment procedures to build an operational baseline of the entity’s industry, regulatory landscape, accounting policies, and internal control environment. This planning stage shapes the nature, timing, and extent of subsequent audit procedures.

An item is material if its omission or misstatement could reasonably influence the economic decisions of users. Materiality is a matter of professional judgment and is calculated quantitatively at planning using common benchmarks:

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