3 reasons for understanding audit client before accepting audit engagement.

Business Entity Concept in accounting explained

It is essential that all members of the audit team fully understand the client’s industry, business and organization. This is so because:  

  • Only in that way can they judge the risks associated with the engagement;
  • An economical and effective audit can only be carried out with a full knowledge of significant environmental, operational and organizational factors;
  • Knowledge of the factors helps in communication with client’s staff, in assessing the reliability of management representations and in judging the appropriateness of accounting policies and disclosures.
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    Audit client management responsibility for compliance with laws and regulation.

    audit client management responsibility for complying with laws and regulation - isa 250

    ISA 250 “Consideration of laws and regulations in an audit of Financial Statement” states that it the responsibility of management, with the oversight of Those Charged With Governance, to ensure that the entity’s operation are conducted in accordance with the provisions of laws and regulations. read more

    What is agreed upon procedures?

    Inventory Turnover Ratio - meaning and formula.

    Agreed upon procedure is an engagement where the client specifies procedures and the accountant agree to perform those procedures. An accountant may accept an engagement to apply agreed- upon procedures to financial Statement elements, where the scope of engagement is not sufficient to express an opinion, If the user assumes responsibility for sufficiency of the procedures, and the use of report is restricted to specified users. read more

    4 reasons for performing preliminary analytical procedures as part of risk assessment.

    reasons for performing analytical procedures as part of risk assessment - isa 520

    ISA 520 Analytical Procedures requires that the auditor performs analytical procedures during the initial risk assessment stage of the audit. These procedures, also known as preliminary analytical review, are usually performed before the year-end, as part of the planning of the final audit. read more