Question

Summary of the importance of planning an audit to consider the risks of material misstatement in a set of financial statements. The summary to include at least one reference.

Answer 1

The onus of planning an audit rests with the engagement partner and the planning of audit entails establishing the overall audit strategy for the engagement. The plan will include planned risk assessment procedures as well as planned responses to the risk of material misstatement.

The importance of planning an audit to consider the risks of material misstatement in a set of financial statements can be gauged from the fact that planning is not a discrete phase of audit but is a continuous and an iterative process. This process usually begins shortly after the completion of the previous audit.

The plan will help the auditors to shape preliminary judgments about materiality, risk, and other factors that are related to determination of material weaknesses. Also auditors will be able to determine the factors that are relevant to the assessment of the risks of material misstatement associated with a particular location or business unit.

Reference:

AS 2101: Audit Planning. PCAOB. Retrieved from https://pcaobus.org/Standards/Auditing/Pages/AS2101.aspx