Accounting Essay

1085 WordsMay 2, 20155 Pages
Auditing Assessment Question A Question1 A thorough understanding of the client entity, its business and its environment, and knowledge of the company's business and industry are essential for doing an adequate audit. ASA315 provides an overview of five components to this understanding. Identify and discuss each of these five components. Auditing Standard ASA315 identifying and assessing the risk of material misstatement through understanding the entity and its environment. Five components are provided to require the auditor to understand the new client. The auditor should understand the business and industry external environment; the nature of the entity (operation and governance structure); management and governance; objective and strategies; measurement and financial performance. 1, There are some reason for obtaining a good understanding of the client’s industry and external factors, it including industry conditions such as the competitive environment, supplier and customer relationships, and technological developments;risk may affect the auditor’s assessment of client business risk and acceptable risk; many industry have unique accounting requirements that auditor should understand to evaluate. For example, auditor should consider with the market and competition, including demand, capacity, and price competition. In addition, the industry in which the entity operates may give rise to specific risks of material misstatement arising from the nature of the business or the degree of regulation. For the regulatory factors, the regulatory environment encompasses, among other matters, the applicable financial reporting framework and the legal and political environment. Such as, accounting principle, industry specific practices, etc. 2. A tour of client’s entity is helpful in obtaining a better understanding of the client’s business operation because it

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