KNOWLEDGE OF THE BUSINESS

Obtaining the knowledge -
 Auditor should obtain knowledge of the business to identify/understand the events transactions and practices that may have a significant effect on financial statements or audit report.
 General knowledge of economy and industry (level of auditor’s knowledge is less than that of management).
 Knowledge at the start of the engagement updation during audit.
 Continuous need for knowledge (knowledge is refined and added in later stages of Audit).
 In continuous engagement, he’ll update information to identify significant changes since last audit.
Sources : For E.g.:
(i) Previous Experience.
(ii) Discussion with people with entity.
(iii) Discussion with internal auditor.
(iv) Discussion with other auditor (Advisor).
(v) Discussion with knowledgeable people outside entity.
(vi) Publication.
(vii) Legislation and Regulation.
(viii) Visits to entity/plant.
(ix) Documents produced by entity (minutes, manuals, plans), etc.
Knowledge assist him in following :
i) Assess risk and problems
ii) Plan and perform audit effectively.
iii) Evaluating audit evidence.
Better service to clients.

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