Page 54 - CA Inter Audit PARAM

CA Ravi Taori
evaluate the reasonableness both of accounting estimates and management representations,
and to make judgement regarding the appropriateness of accounting policies and disclosures.

➢ While understanding entity and its environment, internet sales is being perceived as risky area by the
auditor and thereby would be spending substantial time and extensive audit procedures on this
particular area.

AUTHORS NOTE:
The above points can be arranged from macro to micro for remembrance and convenient:
1. State of Economy
2. Nature of Industry
3. Regulatory Requirement
4. Ownership and Governance
5. Financing and Structure
6. Types of Investment
7. Nature of Operations
8. Financial Reporting Framework
9. Selection & Application of Accounting Policies
10. Financial Performance
11. Objectives

Understanding Entity & its Environment – Examples of types of Old Course -- (M20R/N23M)
QNO understanding to be obtained New Course – (J25M)
315.08
Bhaskar CNO- SA315-P1.060
Knowledge of the Client’s business play an important role in developing an overall audit. In fact, without
adequate knowledge of the client’s business, a proper audit is not possible. As per SA 315, “Identifying and
Assessing the Risk of Material Misstatement through Understanding the Entity and its Environment”, the
auditor shall obtain an understanding of the relevant industry, regulatory and other external factors
including the applicable financial reporting framework. Substantiate with the help of examples.

OR

Knowledge of the Client’s business is one of the important principles in developing an overall audit plan.
In fact, without adequate knowledge of client’s business, a proper audit is not possible. As per SA-315,
“Identifying and Assessing the Risk of Material Misstatement through Understanding the Entity and Its
Environment”, the auditor shall obtain an understanding of the relevant industry, regulatory and other
external factors including the applicable financial reporting framework. Substantiate with the help of
examples.
Answer As per SA 315, “Identifying and Assessing the Risk of Material Misstatement through Understanding the

Entity and its Environment”, the auditor shall obtain an understanding of the relevant industry, regulatory
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