The correct Auditing Assurance Standard (AAS) that deals with Audit Planning is b) AAS-8. Here, we will provide a detailed explanation of why AAS-8 is the correct choice for audit planning and why the other options, AAS-7, AAS-9, and AAS-3, are not appropriate for this specific aspect of the audit process.

b) AAS-8 – The Correct Answer:

AAS-8, titled “Audit Planning,” is a standard that provides comprehensive guidelines for the audit planning process. Audit planning is a critical phase in the audit engagement, where auditors establish a roadmap for conducting the audit. It outlines how the audit will be executed, what areas will be scrutinized, and the resources required. Key aspects covered in AAS-8 include:

1. Understanding the Entity and Its Environment:

This standard instructs auditors to gain a thorough understanding of the audited entity and its operating environment. This includes understanding the entity’s business, its internal control systems, the industry it operates in, and the regulatory framework. This understanding is essential for developing an effective audit plan.

2. Assessing Risks and Materiality:

AAS-8 emphasizes the importance of assessing risks associated with the entity and the audit process. Auditors are required to identify and evaluate the risks of material misstatement in the financial statements. This risk assessment is crucial for determining the audit scope and procedures.

3. Audit Objectives and Audit Strategy:

The standard guides auditors in setting clear audit objectives, which serve as a basis for audit planning. Additionally, it discusses the development of an audit strategy that outlines the approach to achieving those objectives, including the allocation of resources.

4. Materiality and Tolerable Misstatement:

AAS-8 provides guidance on determining materiality levels and tolerable misstatements, which help auditors in planning their audit procedures and deciding where to focus their efforts.

5. Audit Documentation:

The standard highlights the importance of maintaining comprehensive audit documentation during the audit planning phase to support the planning decisions and procedures.

In essence, AAS-8 plays a central role in ensuring that audit planning is systematic, thorough, and based on a proper understanding of the entity, its risks, and its financial reporting processes.

Why the Other Options are Not Correct:

a) AAS-7:

AAS-7, titled “Documentation,” focuses on the audit documentation requirements. It outlines the procedures for maintaining proper audit documentation to support the audit evidence and conclusions.

AAS-7 is crucial for the audit process but does not directly deal with audit planning. While documentation is an essential part of planning, AAS-7 addresses the broader aspect of maintaining audit records rather than the planning process itself.

c) AAS-9:

AAS-9, titled “Using the Work of an Expert,” provides guidelines for auditors when they need to rely on the work of specialists or experts in the course of their audit. This standard helps auditors evaluate and use the work of these experts effectively. It does not pertain to audit planning.

d) AAS-3:

AAS-3, titled “Documentation of Audit Evidence,” deals with the documentation of audit evidence during the course of an audit. It outlines the requirements for documenting the audit procedures performed and the evidence obtained.

While proper documentation is crucial in audit planning, AAS-3 primarily addresses the documentation of evidence during the audit fieldwork and does not specifically focus on the initial planning phase.

In conclusion, AAS-8 is the correct Auditing Assurance Standard that deals with Audit Planning. This standard provides comprehensive guidance on the essential aspects of audit planning, including understanding the entity and its environment, assessing risks and materiality, defining audit objectives and strategies, and determining materiality levels.

The other options (AAS-7, AAS-9, and AAS-3) address different aspects of the audit process, such as documentation, using the work of experts, and documenting audit evidence, but they are not specifically focused on the planning phase of the audit.