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Unformatted text preview: Audit Planning – Understanding the Client, Assessing Risk Knowledge of the Business - This AAS deals with the definition of the knowledge of the business, its importance to the auditor and the audit staff, its relevance to the audit; and how the auditor obtains and uses the knowledge. The auditor should have or should obtain knowledge of the business efficient to identity and understand the events, transactions and practices, which in his judgement might have a significant effect on the financial statements or on examination or audit report. The auditor should be such knowledge to assess inherent and control risks and to determine the nature, timing and extent of audit procedures. Auditor’s level of knowledge would include a general knowledge of the economy and the industry within which the entity operates and a more particular knowledge of how the entity operates. In case of a new engagement, the auditor would need to obtain a preliminary knowledge of the industry and of nature of ownership/management and operations of the entity. For continuing engagements, the auditor would need to update and reevaluate information gathered previously and would also perform procedures designed to identify significant changes that have taken place since the last audit. The AAS illustrates a number of sources from which the knowledge can be obtained, viz., previous experience with entity/industry, discussion with senior operating personnel of the entity, discussion with internal auditors, review of internal audit reports, discussion with legal advisors etc. The knowledge so obtained would assist the auditor in assessing risks and identifying problems, planning and performing audit effectively and efficiently, evaluating audit evidence, and providing better services to clients. The auditor should ensure that the audit staff should obtain sufficient knowledge of the business. Effective use of knowledge requires the auditor to consider its effect on the financial statements taken as a whole and also consider whether the financials statement assertions are consistent with his knowledge of the business. 1.5.7 Audit Planning - The purpose of this AAS is to amplify various principles regarding `planning', i.e., the auditor should plan his work to enable him to conduct an effective audit in an efficient and timely manner; that plans should be based on knowledge of client's business; and that plans should cover, among other things, knowledge of client's accounting systems, policies and internal control procedures, establishing the expected degree of reliance to be placed on internal control; determining nature, timing and extent of audit procedures; and, coordinating the work to be performed. The AAS also deals with the factors to be considered in audit planning and development of audit plan, and acquiring the knowledge of client's business, as also the timing for audit plan. This AAS became operative for all audits relating to accounting periods beginning on or after April 1,...
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- Spring '11