Answers - Association of Chartered Certified Accountants

AnswersProfessional Level Options Module, Paper P7 (UK)Advanced Audit and Assurance (United Kingdom)June 2009 Answers1(a)Briefing notesTo: Audit JuniorsFrom: Audit managerSubject: understanding a client s business and environment(i)IntroductionGaining an understanding of the business of a client, and the environment in which it operates is a crucial part of theaudit planning process. ISA 315 (UK and Ireland) Obtaining an understanding of the entity and its environment andassessing the risks of material misstatementprovides guidance on this matter. The issue is that the auditor must havea thorough understanding of many aspects of the client s business and environment in order to be able to assess risk,decide on an appropriate audit strategy, and be able to design and perform effective audit to be consideredISA 315 states that there are five main aspects of the client s business and environment which the auditor , regulatory and other external factors, including the applicable financial reporting frameworkThis means having an understanding of the industry in which the company operates, including the level ofcompetition, the nature of the relationsh

4. Measurement and review of the entity’s financial performance Here the auditor is looking to gain an understanding of the performance measures which management and others consider to be of importance. Performance measures can create pressure on management to take action to improve the financial statements through deliberate misstatement.

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