ISA 315 – Identifying and assessing the risks of material misstatement through understanding the entity and its environment, states that the auditor should obtain an understanding of the entity and its environment. It is an important statement in the planning of the audit.

1. What is the auditor’s overall objective of gaining an understanding of the entity and its environment? (2)
2. List six broad areas or aspects of conducting an audit for which having a thorough knowledge of the entity will greatly assist the auditor. (3)
3. Audit procedures to obtain an understanding of the entity are referred to as “risk assessment procedures.” Identify three categories of risk assessment procedures and give one examples of each category. (6)
4. The auditor’s understanding of the entity and its environment consists of an understanding of five aspects. The first is “the industry, the regulatory framework and other external factors.” Mention any 2 of the remaining four? (2)