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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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