Chapter 8 Obtaining Information About the Entity.docx
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Chapter 8 Obtaining Information About the Entity.docx
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Chapter8ObtainingInformationAbouttheEntity
BrowseLocation:
UnitedStates\PwCMaterial\Montgomery'sAuditing,TwelfthEdition\Part2:
TheoryandConcepts
PublishDate:
25June,2001
窗体顶部
窗体底部
8
ObtainingInformationAbouttheEntity
8.1ObtainingKnowledgeoftheEntity'sBusinessandIndustry
8.2ReviewingPriorYears'AuditWork
8.3GatheringandAnalyzingRecentFinancialInformation
8.4UpdatingKnowledgeofApplicableAccounting,Auditing,andRegulatoryStandards
8.5ConsideringtheEntity'sRiskManagementPolicies
8.6identifyingRelatedPartyTransactions
8.7IdentifyingInherentRisks
8.8makingPreliminaryMaterialityJudgments
8.9ResearchingAuditingIssues
Theauditorneedsanunderstandingofvariousaspectsoftheentityanditsbusinessinordertodeterminetheauditingprocedurestobeperformed,theirtiming,andtheirextent.Muchoftheinformationthatformstheunderstandingisgeneralandrelatestothenatureoftheentity'sbusiness,theindustryitoperatesin(includinglegalandregulatoryrequirementspeculiartotheindustry),theprocessesmanagementhasimplementedtomeetentityobjectives,thesignificantaccountsintheentity'sfinancialstatements,theaccountingpoliciesandpracticesusedbymanagement,andinterrelationshipsamongentityfinancialandoperatingdata.Basedonthatunderstanding,theauditoridentifiesinherentrisksassociatedwiththeentity.Thoserisks,inturn,affecttheauditingprocedurestobeperformed.Theauditoralsomakespreliminarydeterminationsastomateriality.
Onanewengagement,gatheringinformationabouttheentitycanbealengthy,detailedprocess,whichmaybeaidedbyreferencetoapredecessorauditor'sfiles,asdiscussedlaterinthechapter.Forarecurringengagement,muchofthegeneralinformationabouttheentityisavailablefromprioryears'workingpapersandneedsonlytobeupdated,notgatheredalloveragain.Bothentitypersonnelandtheauditorshouldbecarefulnottotreatchangedcircumstancesperfunctorily.Anentity'spersonnelcaneasilyforgetchangesthattookplaceduringtheyearbecausetheyhavebecomeroutinebythetimetheauditormakesinquiries;theauditorcaneasilytreatsignificantchangesastrivialiftheirimplicationsarenotconsideredthoroughly.Anauditorapproachingarecurringengagementshouldrememberthatchangedconditionscanmakelastyear'sunderstandingoftheentityandtherisksassociatedwithitobsoleteandamisleadingguidetothenatureandextentoftheproceduresrequired.Theauditorshouldreviewchangedcircumstancesandupdatehisorherunderstandingbeforedesigningauditingprocedures.
Informationabouttheentity'sbusinessandindustry,recentfinancialinformation,familiaritywiththeresultsofprioryears'work,andaknowledgeofapplicableaccounting,auditing,andregulatorystandardsareusefulforidentifyinginherentrisksandthecontrolsmanagementmayhaveimplementedinresponsetothoserisks.Therelevantinformationisdiverse,obtainedfrommanysources,anddocumentedinanumberofplacesintheauditworkingpapers.Mostoftheinformation-gatheringproceduresareperformedduringtheearlystagesoftheaudit;however,theauditorislikelytoobtainadditionalinformationabouttheentitythroughouttheengagementandshouldconsiderthatinformationindeterminingthenature,timing,andextentofauditingprocedures.Ingatheringinformationabouttheentity,aswellasatotherstagesintheaudit,mattersmayarisethatrequireresearchinordertoacquireinformationneededforthedecision-makingprocess.
8.1ObtainingKnowledgeoftheEntity'sBusinessandIndustry
Toalargeextent,entities'operationswillrespondtothestructureanddynamicsoftheindustryorindustriesinwhichtheydobusiness.Theauditorshouldbecomefamiliarwiththoseindustrycharacteristics,withtrendsintheindustry,andwiththeentity'spositionintheindustry.Industryconditionsthatcanaffectanentityincludeitsmarketshareandrelativesize,industrypracticessuchastheuseofquantitydiscountsandconsignmentsales,andcompetitionfromotherindustries.Iftheentityhassignificantactivitiesinmorethanoneindustry,theauditorshouldobtaininformationabouteachindustry.
Tobeeffective,thevariousday-to-dayoperationalprocessesmustberesponsivetothedynamicsoftheindustryinwhichtheentityoperates.Broadly,businessprocessesconsistofacombinationofinterrelatedactivities,decisions,information,andresourcesdesignedtoaccomplishtheentity'sobjectives.Businessprocessescutacrossfunctional,unit,andgeographicalboundaries.Identifyinganentity'sbusinessprocessescanbeconsideredintermsofthefollowingquestions:
Whatdoestheentitydoandhowdoesitdoit?
Anentity'sbusinessprocessesincludethemeansbywhichitsetsguidelinesanddirectivesformanagingthebusinessasawhole,themethodsitusesfordeliveringproductsandservicesandmanagingcustomerrelationships,andthevariousfunctions,suchasfinancingandinvestingactivities,thatsupportandfacilitatetheoperationofthebusiness.Examplesarenewproductdevelopment,whichmay,dependingontheentityanditsindustry,includeresearchactivities;productionplanning,whichmaybecomplexandinvolveconstructingnewfacilities;analyzingmarketneeds,projectingdemand,andconsideringcompetitors;arrangingfinancingforoperations;purchasingmaterials,includingestablishingrelationshipswithsuppliers;manufacturingproducts;anddistributingandmarketingproductsorservices.
Informationaboutthebusinessanditsprocessesthatisparticularlyrelevanttotheauditorincludesproductlines,sourcesandmethodsofsupply,marketinganddistributionmethods(includingmajorcustomers),sourcesoffinancing,andproductionmethods.Theauditoralsoshouldobtaininformationaboutthelocationsandrelativesizeofoperatingplants,divisions,andsubsidiaries,andtheextenttowhichmanagementisdecentralized.Theauditor'sunderstandingoftheentity'sbusinessprocesseshelpsinidentifyingrisksassociatedwiththeentity'soperationsandmethodsofdoingbusinessandmayfacilitatethedesignofappropriateauditingprocedures.
Theauditoralsoshouldlearnabouteconomicconditionsthataffecttheentity'sbusinessandindustry.Economicconditionsaffectthecontinuingabilitytogenerateandcollectrevenues,operateprofitably,andprovideareturntoinvestors.Unfavorableeconomicconditionsmayraisequestionsaboutwhethertheentity'sassetsarerecoverable,howitsliabilitiesshouldbemeasured,and,ultimately,whetheritcanremaininbusiness.Unfavorableeconomicconditionsalsomayincreasethelikelihoodofintentionalfinancialstatementmisrepresentations.
Theauditorcanobtainentityandindustryinformationfromavarietyofsources,includinggovernmentstatistics;economic,financial,industry,andtradejournals;publicationsandbrochureswrittenbytheentity;internalauditreports,whereapplicable;andreportspreparedontheentity,itscompetitors,oritsindustrybyunderwriters,merchantbankers,andsecuritiesdealersandanalysts.Increasingly,on-linecomputerservicesandproprietarydatabasesarebecomingasourceforsuchinformation.Insomeinstances,relevantinformationmaybeavailableinregulatoryorexaminationreports,supervisorycorrespondence,andsimilarmaterialsfromapplicableregulatoryagencies.Ifregulatoryexaminationsareinprocess,theauditormayattend(asanobserver)closingconferencesbetweentheexaminerandtheentity.Finally,theauditorlearnsabouttheentityanditsindustrythroughdiscussionswithmanagement.
8.2ReviewingPriorYears'AuditWork
Theknowledgetheauditorobtainsfromreviewingprioryears'auditworkassistsindeterminingthelikelihoodofmaterialmisstatementswithrespecttoindividualaccountbalancesorclassesoftransactions,therebyaffectingthecurrentyear'sriskassessmentandthelevelofassurancerequiredfromsubstantivetests.Forexample,ifnonewinherentriskshavebeenidentifiedandtheentity'sinternalcontrolhasnotchanged,andfewdeviationsfromprescribedpoliciesandprocedureswerefoundinprioryears,theauditormaynotneedtomakesignificantchangesintheauditstrategyandauditprogram.Whilegenerallyitisnecessarytoreviewonlytheworkingpapersfromtheimmediateprioryear,informationrelatingtoseveralprioryearsmaybeusefulindesigningthecurrentyear'stests,particularlywithrespecttothedegreeofchangeinandoperatingeffectivenessofinternalcontrol.
Workingpapersfromprioryearsthatareusefultoreviewcontainfinancialinformation,theunderstandingoftheentity'sbusinessandindustry,controlriskassessments,documentationofsignificantaccountingandauditingmatters,andspecificreferencestothesources(orcauses)ofadjustmentsmadetothefinancialstatements.Theauditoralsoshouldreviewtheeffectivenessandefficiencyoftheprioryear'sengagementtoidentifyauditingproceduresthatshouldbecontinued,expanded,reduced,oreliminatedinordertoenhancethequalityandefficiencyofthecurrentauditandclientserviceplan.
Foranewengagement,muchoftheneededinformationmaybeavailablefromareviewofthepredecessorauditor'sworkingpapers.AsnotedinChapter3,predecessorauditorsgenerallymakeatleastcertainoftheirworkingpapersaccessibletosuccessorauditors.Ordinarily,areviewoftheprior-yearworkingpaperswillprovidefactualinformationabouttheentity'sinternalcontrol,analysesofcertainbalancesheetaccounts,detailsrelatingtocontingenciesandcommitments,andsummariesofproposedauditadju
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