UNDERSTANDING OF THE ENTITY - A CONTINUOUS PROCESS

UNDERSTANDING OF THE ENTITY- A CONTINUOUS PROCESS

Obtaining an understanding of the entity and its environment, including the entity’s internal control (referred to hereafter as an “understanding of the entity”), is a continuous, dynamic process of gathering, updating and analysing information throughout the audit. The understanding establishes a frame of reference within which the auditor plans the audit and exercises professional judgment throughout the audit, for example, when:

•  Assessing risks of material misstatement of the financial statements; 
•  Determining materiality in accordance with SA 320; 
•  Considering the appropriateness of the selection and application of accounting policies; 
•  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; 
• Developing expectations for use when performing analytical procedures; 
•  Evaluating the sufficiency and appropriateness of audit evidence obtained, such as the appropriateness of assumptions and of management’s oral and written representations.