B2

• Understanding the entity and its environment


  • Assess industry conditions
  • Assess principle business strategies
  • Assess competitors
  • Assess laws and regulations
  • Assess technology
  • Assess stakeholders
  • Assess financing
  • Assess acquisitions and disposals
  • Assess related parties
  • Assess competence of management
  • Assess accounting policies
• How to get Initial Understanding

  1. Internal to the audit firm (last year's file)

  2. External sources (credit reference agencies)

  3. Information provided by the client

  4. Auditor's personal experience and knowledge
• ISA 315 requires a planning meeting where 'the members of the engagement team should discuss the susceptibility of the entity's financial statements to material misstatements'
• The minutes of this planning meeting should be documented as evidence of its occurrence
• Analytical procedures should be undertaken at this stage to establish an understanding of the financial statements and draw attention to anomalies