Transcription of Understanding the Entity and Its Environment and …
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Understanding the Entity and Its Environment and …
Understanding the Entity and Its Environment1667AU Section 314 Understanding the Entity and ItsEnvironment and Assessing the Risksof Material Misstatement(Supersedes SAS No. 55.)Source: SAS No. for audits of financial statements for periods beginning on or afterDecember 15, 2006. Earlier application is section establishes standards and provides guidance about im-plementing the second standard of field work, as follows:The auditor must obtain a sufficient Understanding of the Entity and its envi-ronment, including its internal control, to assess the risk of material misstate-ment of the financial statements whether due to error or fraud, and to designthe nature, timing, and extent of further audit importance of the auditor's risk assessment as a basis for further auditprocedures is discussed in the explanation of audit risk in section 312,AuditRisk and Materiality in Conducting an Audit. See section 326,Audit Evidence,for guidance on how the auditor uses relevant assertions1in sufficient detailto form a basis for the assessment of risks of material misstatement and todesign and perform further audit procedures.
1668 The Standards of Field Work ... matters as litigation, compliance with laws and regulations, knowl- ... that have financial statement and audit implications. In performing analytical procedures as risk assessment procedures, the auditor should develop expecta-
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