Asa315 Final Paper

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Question 1 There are five components mentioned in ASA315 (starting from paragraph 26) that relate to understanding of the client entity. Each of these aspects will be identified and discussed in the following. 1. Industry, regulatory, and other external factors, including the applicable financial reporting framework. These factors suggest that, at the beginning, the auditor shall understand the client from the big picture. The industry in which the client operates reflects the nature of the business in terms of market and competition, business model/activity and technological developments. Additionally, legislative and regulatory requirements which come along with the business operation may alter among different types of industry. The auditor needs to identify the industry of the client’s entity so that he/she can determine which financial reporting framework is applicable to the client and examine whether or not they have complied with it. 2. Nature of the entity, including the entity‘s selection and application of accounting policies. The auditor may gain an understanding of the nature of an entity by looking more closely into the business operations (e.g. products/services and income stream), the financial and managerial structure of the entity, and…show more content…
Strategies are the operational approaches that management will/intend to carry out in order to achieve those objectives. Business risks refers to the unexpected variation occurs to the business, which may prevent the entity’s strategies from being effectively executed and eventually the goal being successfully achieved. If management is unable or unprepared to respond to these changes immediately (by modifying objectives or changing strategies), business performance can be worsen which then gives rise to the risk of material misstatement of the financial

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