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Understand the Client’s Business and Industry Why is it important? General Standard: “The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control , to assess the risk of material misstatements of the F/S whether due to error or fraud and to design the nature, timing and extent of further audit procedures.” The nature of the client’s business and industry affects client business risk and the risk of material misstatements in the F/S Recent significant declines in economic conditions around the world are likely to significantly increase Information technology connects client companies with major costumers and suppliers. As a result, the auditor should gather information about the costumers and suppliers Client have expanded operations globally; joint venture & strategic alliances Information technology affect the internal client processes, improving the quality and timeliness of accounting information
Sumary Audit-UAS |By Siceli Wulandari
The increased importance of human capital and other intangible assets ahs increased accounting complexity and the importances of management judgment and estimates Many clients may have invested in complex F/S, sech as collateralized debt obligations or unusual mortgage backed securities, which have little value and require complex accounting treatments Understanding of client’s industry and external environment; Risks associated with specific industries may affect the auditor’s assessment of client business risk and acceptable audit risk-and may even influence auditors against accepting engagements in riskier industries, such as the financial service and health insurance industry. Certain inherent risks are typically common to all clients in certain industries. Familiarity with those risks aids the auditor in assessing their relevance to the client. E.g. : include potential inventory obsolesce in the fashion industry, A/R collection inherent risk in the consumer loan industry, and reserve for loss inherent risk in the casualty insurance industry Many industries have unique accounting requirements that the auditor must understand to...