Obtaining an understanding of the client’s business is key to an effective and efficient audit. Our knowledge of the client’s business also helps us to develop and maintain a positive professional relationship with the client. So following are important factors which should be known by auditor about their clients.
1. Describe the internal factors affecting the business, including
- Business objectives and operations (including key income earning assets)
- Ownership and management structure, including the relationship between the owner
- and the entity, if applicable
- How the entity is financed
- Key personnel
- Selection and application of accounting policies
- Taxation status and issues of the entity and owner, if applicable
- Taxation and reporting requirements
2. External factors including, industry and general business environment; competitive benchmarking; and laws and regulations which have a fundamental impact on operations.
3. Management's risk assessment process - the process used to identify, analyze, and manage the risks faced by the entity.