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one of the planning stage is understanding the entity, I believe if we are able to better understand the client Ultimately the risk of giving the wrong opinion is low.
Reason why I think this are required by the isa
1)understanding the client ( The reason for understanding the client is to know about how they run their business and to see if there is any deficiencies that may lead to romm.
2) Industry – ( conditions on that affect the industry for example during covid hotel industries were effected potentially there going concern so that is why we look at industry)
3) Regulation_- if rules are not adhered to that may give arise to fines for that there may be penalties. so if not correct provision are not recorded maybe another romm
4. applicable reporting- to see if accounting polices have been followed, if not assertions like classification and presentation are not valid. and again we might give the wrong opnion.so does everything comes down to us giving the wrong opnion. Am i correct? can you please add examples if I am not. Thank you
Everything about an audit ultimately comes down to the opinion – see page 5 of the notes for the definition of an audit – the two important word are “independent” and “opinion”.
That’s why we look at the auditor’s report in an early chapter even though it is issued at the end of the audit – so in the example on page 32 it states:
“In our opinion, the accompanying financial statements present fairly, in all material respects, (or give a true and fair view of) …”
If auditors were in the habit of giving inappropriate opinions (rather than “wrong” – since it is a matter of opinion) there would be no auditing profession – there would be no demand for audit if it did not provide assurance.
Sir the reason I gave for looking at each point of understanding the entity is it correct?
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