How to get Initial Understanding

NotesVideoQuizCBEMock

Firstly the auditor needs to understand the entity’s environment, this will require the auditor to assess:

The following..

  • Industry conditions

  • Principle business strategies

  • Competitors

  • Laws and regulations

  • Technology

  • Stakeholders

  • Financing

  • Acquisitions and disposals

  • Related parties

  • Competence of management

  • Accounting policies

From a number of sources..

  1. Internal to the audit firm such as last years’ file.

  2. External sources such as credit reference agencies.

  3. Information provided by the client.

  4. The auditor’s personal experience and knowledge

ISA 315 requires a planning meeting where ‘the members of the engagement team should discuss the susceptibility of the entity’s financial statements to material misstatements.’ The minutes of this meeting should be documented as evidence of its occurrence.

Analytical procedures should be undertaken at this stage to establish an understanding of the financial statements and draw attention to anomalies.

We will look more closely at analytical procedures later.

NotesVideoQuizCBEMock