When obtaining an understanding of the entity and its environment including its internal control the auditor may identify?
Auditors acquire an understanding of the entity so as to have a frame of reference within which to plan and perform the audit and to exercise sound professional judgment. Show
Compliance audit; Financial audit Planning [section separator="true"] [section-item 9] [row] [column 12] [toc-this] InstructionsThe entity's businessThe auditor's understanding of the entity and its operations should focus on those elements necessary to help reach a conclusion about the audit objectives. Typically, (s)he needs to acquire an understanding of the following:
Applicable management methodWhile according to the [link new-window title="Treaty%20(TFEU)" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2FPDF%2F%3Furi%3DCELEX%3A12012E%2FTXT%26from%3DEN%23page%3D140" icon="external-link" /] the Commission is responsible for overall implementation of the budget, the[link new-window title="Financial%20Regulation" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3DCELEX%3A32018R1046%23062" icon="external-link" /] provides for three different management methods for budget implementation. Each method involves a different allocation of roles and responsibilities for the implementation of the budget, which should be taken into account when planning, undertaking and reporting on an audit.Specific instructions per type of audit[tabs filled color="border-dark" css-code="div%3Anth-child(1)%20%7Bcolor%3A%20rgb(192%2C57%2C43)%7D%0Adiv%3Anth-child(2)%20%7Bcolor%3A%20%230072c6%7D" css_code_compiled=".dynamic-unique-shortpoint-class-name%20div%3Anth-child(1)%20%7B%0A%20%20%20%20color%3A%20rgb(192%2C57%2C43)%0A%7D%0A.dynamic-unique-shortpoint-class-name%20div%3Anth-child(2)%20%7B%0A%20%20%20%20color%3A%20%230072c6%0A%7D"] [tab title="Compliance%20audit"] [emphasis color="primary"]Understanding the entity's laws and regulations[/emphasis] Understanding the framework of laws and regulations and using this information appropriately will assist the auditor in identifying potential material deviations. This understanding then helps the auditor to determine whether the inherent risk is to be classified as high or not high, for use in the Assurance model, and in deciding upon the nature, timing and extent of audit procedures to be performed. The regulatory framework which the auditor considers when obtaining a knowledge of the auditee's activities and identifying relevant laws and regulations applicable to the auditee's activities will include the relevant parts of:[link new-window title="TFEU" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3Dcelex%3A12012E%2FTXT" icon="external-link" /] ;[link new-window title="Financial%20Regulation" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3DCELEX%3A32018R1046" icon="external-link" /] and internal financial rules of each institution (e.g. Commission internal financial rules):The auditor's understanding includes knowledge of the reasons for the legislation and its objectives, as this will aid his/her understanding of any secondary legislation or subsidiary regulations. The extent of the auditor's work on obtaining a sufficient understanding of the legal and regulatory framework will depend on the nature and complexity of the laws and regulations. However, the auditor only needs to understand the parts of the legislation that are relevantto the particular audit task. In all cases, the audited entity retains the responsibility for ensuring compliance with applicable laws and regulations; this includes ensuring that legislation and regulations are appropriately reflected at all stages through to operational guidance. In complex regulatory environments, the auditor considers the translation of laws and regulations into relevant rules and procedures, and may seek written representations from management in this regard; however, such representations constitute weak audit evidence, and need to be reviewed critically. Ultimately, the auditor's conclusion should be based on evidence of compliance with the appropriate laws and regulations and the contractual framework, rather than on evidence of compliance with the entity's understanding of the framework. Where the auditor is uncertain whether legislation has been properly interpreted and the effect could be material, it may be necessary to seek a legal advice. If the laws and regulations do not change from year to year, the auditor may already have sufficient knowledge from previous audits. [/tab] [tab title="Financial%20audit"] The extent of the auditor's work to obtain a sufficient understanding of the entity and its environment will depend on the complexity of the operations and the related accounting processes; the auditor's previous experience of the entity; and the degree of change, if any, that has taken place since previous audits. Understanding the entity and its environment in financial audit encompasses an understanding of: [link title="financial%20reporting%20framework" link="%2Faware%2FFA%2FPages%2FConcepts%2FFinancial-reporting-framework.aspx" /] , including the accounting rules adopted and the regulatory provisions of the[link new-window title="TFEU" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3Dcelex%3A12012E%2FTXT" icon="external-link" /] and[link new-window title="Financial%20Regulation" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3DCELEX%3A32018R1046" icon="external-link" /] , under which the annual accounts are prepared. The financial reporting framework and other regulations include those set out in the specific legislation establishing the audited entity and determining its activities. Such understanding also covers presentation of the annual accounts, including the disclosure of material matters, terminology used, the classification of items, and the basis of the amounts;The risk of misstatement is increased due to the enormous number of projects financed by the EU, the amounts at stake, the multiple models of project life-cycles, the specific accounting schemes, the diverse nature of contracts, the nature and reliability of the information available for each project. [toggles class="list2left"] [toggle title="Examples%20of%20significant%20items%20in%20the%20EU%20accounts"]
[/toggle] [/toggles] [/tab] [/tabs] [/toc-this] [/column] [/row] [/section-item] [section-item 3] [row] [column 12] [panel panel-style="boxed" title="Related%20documents" icon="book" class="ref-panel"] [standards] [link new-window title="ISA%20315" link="https%3a%2f%2fwww.ifac.org%2fsystem%2ffiles%2fpublications%2ffiles%2fIAASB-2020-Handbook-Volume-1.pdf%23INTERNATIONAL%2520STANDARD%2520ON%2520AUDITING%2520315%2520(REVISED)" /] [/standards] [rules] [link new-window title="Art%20317%20TFEU" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2FPDF%2F%3Furi%3DCELEX%3A12012E%2FTXT%26from%3DEN%23page%3D140" /] [link new-window title="Art%2062%20FR" link="https%3A%2F%2Feur-lex.europa.eu%2Flegal-content%2FEN%2FTXT%2F%3Furi%3DCELEX%3A32018R1046%23062" /] [/rules] [/panel] [/column] [/row] [row] [column 12][/column] [/row] [row] [column 12] [toc fixed="true" selectors="h2%2Ch3" class="basic-toc" /] [/column] [/row] [/section-item] [/section] Last Modified: 04/11/2021 11:33 Tags: When obtaining an understanding of the entity and its environment the auditor should obtain?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 design the nature, timing, and extent of further audit procedures.
When obtaining an understanding of an entity's internal control an auditor should?In obtaining an understanding of controls that are relevant to audit planning, the auditor should perform procedures to obtain sufficient knowledge about the design of the relevant controls pertaining to each of the five internal control components and determine whether they have been placed in operation.
What is obtaining an understanding of an entity control environment?21) To obtain an understanding of an entity's control environment, an auditor should concentrate on the substance of management's policies and procedures rather than their form because: A) management may establish appropriate policies and procedures but not act on them.
When obtaining an understanding of an entity's control environment An auditor should concentrate?When obtaining an understanding of an entity's internal controls, an auditor should concentrate on the substance of the controls rather than their form because: Management may establish appropriate procedures but not enforce compliance with them.
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