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The engagement partner or manager ensures that the

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Unformatted text preview: risk and plan the audit. Preliminary Engagement Activities There are generally three preliminary engagement activities: (1) determining the audit engagement team requirements; (2) ensuring the independence of the audit team and audit firm; and (3) establishing an understanding with the client regarding the services to be performed and the other terms of the engagement. The auditor starts by updating his or her understanding of the entity and its environment. The auditor’s understanding of the entity and its environment should include information about each of the following categories: • • • • • Nature of the entity. Industry, regulatory, and other external factors. Objectives and strategies and related business risks. Entity performance measures. Internal control. Because the understanding of the entity and its environment is used to assess the risk of material misstatement and to set the scope of the audit, the auditor performs risk assessment procedures to support that understanding (e.g., inquiring of personnel, reading business plans an...
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