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.
providing the auditor with a different perspective in identifying risks of mate-rial misstatement. In determining others within the entity to whom inquiries may be directed, or the extent of those inquiries, the auditor should consider what information may be obtained that might help the auditor in identifying risks of material misstatement.
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