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Exercise 2

The document discusses sources of knowledge that Mary Dizon, an auditor, can use to obtain an understanding of a prospective financial institution client in order to plan an audit engagement. These sources include: (1) reviewing prior year working papers; (2) touring client facilities; (3) discussing with internal and external parties; (4) reading publications related to the entity; and (5) reviewing financial reports and documents. The document also discusses obtaining client management acknowledgement of its responsibilities to provide access to information and personnel. Finally, it discusses considering how obtained knowledge of the client's business and industry affects financial statements and their assertions.

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242 views2 pages

Exercise 2

The document discusses sources of knowledge that Mary Dizon, an auditor, can use to obtain an understanding of a prospective financial institution client in order to plan an audit engagement. These sources include: (1) reviewing prior year working papers; (2) touring client facilities; (3) discussing with internal and external parties; (4) reading publications related to the entity; and (5) reviewing financial reports and documents. The document also discusses obtaining client management acknowledgement of its responsibilities to provide access to information and personnel. Finally, it discusses considering how obtained knowledge of the client's business and industry affects financial statements and their assertions.

Uploaded by

sharielles /
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Exercise 2

a. Mary Dizon can obtain knowledge of the financial institutions from number of

sources. These may include:

(i) review of prior year's working papers;

(ii) tour of client's facilities;

(iii) discussion with people within and outside the entity;

(iv) reading books, periodical, and other publications related to the entity;

and (v) reading the institutions documents and financial reports.

b. Mary Dizon may obtain an agreement of management that it acknowledge and understand its
responsibility to provide her with access to all information relevant to the preparation of financial
statements, additional information for the purpose of the audit, unrestricted access to persons within
the entity to obtain necessary audit evidence, or reviewing the predecessor auditor's working paper.

c. To make effective use of knowledge about the client's business and industry, the Mary Dizon should
consider how it affects the financial statements and whether the assertions in the financial statements
are consistent with her obtained knowledge of the financial institution.
Mary Dizon has been asked to accept an engagement to audit a small financial institution. Dizon has not
previously audited a financial institution.

a. Describe the types of knowledge about the prospective client and its environment that Dizon should
obtain to plan the engagement.

The types of knowledge that an auditor must obtain an understanding of the prospective client and its
environment whether that engagement with the client should be accepted is list as follows:

 Nature of the client which includes the application of accounting policies and procedures, with
this policies Dizon should have a thorough understanding of the clients internal accounting
control, competitive position, relevant regulatory or reporting requirements, ownership of the
company, offered products and the capital of the client.
 Industry and other external factors of the client. The included factors are the conditions of the
relevant industries, customer and supplier relationship and developments within technology.
Political environment and economic decisions are also included in the external factors.
 Related business risk and strategies of the client. Dizon must have a better understanding of the
client’s strategies on financing and organizing. An understanding of the management is also a big
help to the auditors. Obtaining this knowledge will help the auditors to identify crucial business
risk that may contribute to material misstatement.
 Performance, methods and other internal factors. Clients compliance within the ethical
requirements and the methods used in determining the management of employees is a big help
with the auditor to obtain understanding in the clients internal control and to measure
performance of the organization. This will make assessment of control risk uncomplicated.

b. Explain how Dizon may obtain this knowledge.

c. Discuss how this knowledge of the client and its environment will help Dizon in planning and
performing an audit in accordance with generally accepted auditing standards.

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