What is the auditor’s objective for understanding an entity’s business environment?
The objective of the auditor for understanding the client and its environment are the following:
1) To be able to deliberate transactions and events which may have a significant effect on
the financial statements, engagements and reports concerning the auditor’s opinion;
2) To enable the risk assessment of material misstatement due to fraud;
3) To plan the nature, timing, and extent of further audit procedures.
Provide some additional examples of business risks that might not lead to a risk of material
misstatements in the financial statements.
Additional examples of business risks that might not lead to a risk of material misstatements
in the financial statements are:
1) Stealing from the petty cash fund
2) Office supplies used and consumed by the employees for personal benefit
3) Personal businesses of employees using the company’s utilities.