Concept Introduction:
Auditing is an independent examination of financial statements. The set of financial statements includes
Understanding the client, its business and internal control: The auditor takes the understanding of the client business and internal control to plan its
To indicate: The type of enquiries about a perspective client an auditor should make to third parties.
Explanation of Solution
Understanding the characteristics of an entity’s business model is the first task of the preliminary engagement activities performed by the auditor at the time of accepting the audit engagement. The auditor takes the understanding of the client business and internal control to plan its audit procedures. On the basis of his knowledge of the business and internal control, the auditor determines the nature, timing, and the extent of the audit procedures.
The auditor can also enquire to third parties about a perspective client to know more about the client. The auditor may ask the client’s creditor / lenders about the credibility of its previous financial statements and repayment practices of the client. This will help the auditors to know the possible areas of misstatement related to third parties.
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Chapter 3 Solutions
Auditing & Assurance Services: A Systematic Approach (Irwin Accounting)
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