Auditors cannot effectively audit clients unless they fully understand the client’s industry and the risks inherent in it that may affect their client. Therefore, an important part of every audit plan is to understand how current developments in the industry may be affecting an audit client.

Required:

a. Perform a background analysis of one of the following industries.

1. Specialty retailers (e.g., catalog retailers, e-commerce retailers)

2. Financial institutions (e.g., banks, insurance companies)

Identify the following:

• Potential problems identified in the financial press

• Current economic trends as described in industry publications

• The regulatory environment affecting the industries, including pending legislation

• Components of the balance sheets of companies in each industry that would represent high risk

b. Select one company in the industry and analyze the specific risks associated with that company. Consult the periodical index in your library for news articles and trade statistics. See, for example, Robert Morris statistics for banks or Best’s Review for insurance companies.