Framework for Audit Evidence and Importance of Audit Planning

This assignment is divided into two parts. The first part focuses on the framework for audit evidence, defining it as information gathered during audit procedures used to reach reasonable conclusions. It highlights the features of audit evidence, including its information content and relevance to management assertions regarding financial statements and internal controls. The framework provides a systematic approach to conduct audits effectively. The assignment emphasizes the importance of obtaining sufficient and appropriate audit evidence, differentiating between the quantitative (sufficiency) and qualitative (appropriateness) aspects. The second part focuses on the importance of planning an audit, as defined by AS 2010. It explains the concept of the risk of material misstatement and its components (inherent and control risks). The assignment highlights the crucial role of audit planning in identifying areas with a higher risk of material misstatement, which is essential for performing audit procedures efficiently and effectively, particularly in risk-based audit approaches. The bibliography provides references to the standards used, including PCAOB standards related to audit evidence, audit planning, and risk assessment.

Part - 1
Framework for Audit Evidence and its importance in Audit
Engagement:
Audit Evidence:
It refers to all the information (basically the findings and other information
gathered from the audit procedures) which can be used by the auditor to arrive
at the reasonable and consistent conclusions on which the auditor bases his
opinion ("Auditing Standard No. 15", n.d.). The features of Audit evidence are as follows
("AU 326 Evidential Matter", n.d.):
 It consists of information
 Such information either supports or contradicts with the management’s
assertions
 Such assertions made by the management may be pertaining to the
financial statements & internal controls involved in preparation and
presentation of such financial statements.
Framework:
‘Framework’, in the context of ‘Audit’ refers to a systematic and disciplined
approach to conduct the audit with effectiveness and efficiency.
Importance of Framework for Audit Evidence:
Framework for audit evidence helps the auditor in accomplishing the objectives
of auditing by providing the disciplined and more systematic approach in
evaluation and continuous improvement of how effectively the evidence were
gathered and thereby increases the quality of conclusions drawn from the
evidence so gathered.
Audit Evidence - Sufficiency and appropriateness:
The framework of audit evidence compels the auditor to obtain sufficient
appropriate audit evidence from various audit procedures he intends to perform.
The auditor is bound to obtain audit evidence which should be sufficient as well
as appropriate so that the auditor can base his overall opinion, as to whether
financial statements of the entity are free from material misstatement and the
operational efficiency of the internal controls, on audit evidence so obtained. The
sufficiency is quantitative aspect of the audit evidence while the appropriateness
is the qualitative aspect.

Importance of Audit Evidence in Audit Engagement:
Audit evidence is important to the auditor as it provides the auditor with the
information regarding the potential threats or weakness that may be occurred in
the clients’ financial statements. Audit evidence also provides the premise and a
degree of competent evidential support for the expression of opinion on the
financial statements as to whether the financial statements are free from
material misstatement or not.

Part – 2
Importance of Planning an Audit to consider the Risk of Material
Misstatement
Planning an Audit:
As per AS 2010, Audit Planning, issued by PCAOB, audit planning includes
creation of an approach or a strategy for the audit engagement under
consideration and involves development of an audit plan ("AS 2101: Audit Planning",
n.d.).
Risk of Material Misstatement:
Risk of material misstatement is the potential risk that the financial
misstatements of the entity under the audit may have been misstated to a
material level. The risk is the product of inherent risk and control risk.
Importance of Planning an Audit in performing Risk Assessment
Procedures:
Effective planning of an audit is very much required by an auditor if he wishes to
ensure to focus on the areas where the risk of material misstatement is more
and perform audit efficiently.
Planning of an audit involves understanding the environment of the entity which
is also crucial for determining the following aspects of risk assessment
procedures to be performed ("Auditing Standard No. 9", n.d.):
 Nature;
 Timing; and
 The extent to which the audit procedures should be performed..
Audit planning plays a key role in determining the key areas with material risk of
misstatement in risk based audit approach.

Bibliography:
Auditing Standard No. 15. Retrieved from
https://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_15.aspx
AU 326 Evidential Matter. Retrieved from https://pcaobus.org/Standards/Archived/Pages/AU326.aspx
AS 2101: Audit Planning. Retrieved from https://pcaobus.org/Standards/Auditing/Pages/AS2101.aspx
Auditing Standard No. 9. Retrieved from
https://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_9.aspx