Page 85 - CA Inter Bhaskar Vol 1

CA RAVI TAORI It is a continuous process as we get exposed to entity, its environment, its document
RISK ASSESSMENT AND INTERNAL CONTROL
AUDIT BHASKAR CH 03 - PART 01 on continuous basis. So we gather, update & analyze information for the audit
(QNO-315.09)
(CNO-SA315-P1.080) NEED OF UNDERSTANDING OF THE ENTITY-AND IT IS A CONTINUOUS PROCESS
Chart

With the help of this we create a frame of reference (image) which will
be useful in planning the audit & exercising professional judgement

Following are the areas where this knowledge will be helpful
Shortcut – Main AREAS

M
Selection & Application of Accounting policies
A
R Materiality Determining materiality as per SA 320
Risk of Material Misstatement
E Evidence Evaluating whether audit evidence is sufficient & appropriate
A In Analytical procedures developing expectation Assessing risk of
material misstatement
S Identifying audit areas where special audit consideration may be necessary
Ex- Related party, Going Concern

Understanding Obtaining an understanding of the entity and its environment, including the entity's internal control
of the entity (referred to hereafter as an “understanding of the entity”), is a continuous, dynamic process of
and its gathering, updating and analysing information throughout the audit. The understanding establishes a
Environment
frame of reference within which the auditor plans the audit and exercises professional judgment
throughout the audit, for example, when: ( -ain M AREAS )
M - Determining materiality in accordance with SA 320;
R - Assessing risks of material misstatement of the financial statements;
A- Considering the appropriateness of the selection and application of accounting policies;
S- Identifying areas where special audit consideration may be necessary, for example, related
party transactions, the appropriateness of management's use of the going concern assumption, or
considering the business purpose of transactions;
A- Developing expectations for use when performing analytical procedures;
E - Evaluating the sufficiency and appropriateness of audit evidence obtained, such as the
appropriateness of assumptions and of management's oral and written representations.

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