In 2008 and 2011, the PCAOB issued Staff Audit Practice Alerts to assist auditors in identifying economic factors that could affect a client's material misstatement risk. Please discuss (1) why it is important to understand the client's business environments and risks before planning an audit and (2) how the auditor takes into account their understanding of the client's business risks when they assess the audit risk?

Answer rating: 100% (QA)

Importance of Understanding Business Environment and Risks Before Audit Planning Understanding a clients business environment and risks is crucial for effective audit planning for two main reasons Ass... View the full answer