Understanding an Entity

Question 1

What is a risk

Answer 1

Where the financial statements could be wrong

Question 2

How do we identify risks

Answer 2

Developing an understanding of our client.

Question 3

Matters to consider when obtaining an understanding of an entity nmonic

Answer 3

SIIMON

Question 4

S

Answer 4

Selection and application of Accounting policies

Question 5

I1

Answer 5

Industry and regulation

Consider legislation,
competition
technology

Question 6

I2

Answer 6

Internal controls

Question 7

M

Answer 7

Measurement of financial performance

Trends
Budgets/forcecast

Question 8

O

Answer 8

Objectives

New products
expansion etc

Question 9

N

Answer 9

Nature of entity

Revenue sources
Target group
Financing
Location
Risk

Question 10

ISA rule

Answer 10

Auditors need to understand the applicable accounting framework, even if they are industry specific practices.