ABSTRACT
Introduction In Chapter 4, we discussed client acceptance and retention, provided an introduction to audit planning, gave an initial look at the end result of the audit process-the auditor’s report-and introduced Figure 5.1, which provides an overview of the audit process that will be followed in this text. This chapter focuses on the procedures to develop an understanding of a client’s industry and business (IIa). Although a basic acquaintance with the client and its industry is included as part of preliminary audit planning, this chapter provides more depth of analysis in order for the auditor to develop a thorough understanding of the client. This understanding conditions all parts of the audit from the controls that will be tested through to the substantive tests that will be performed. The depth of evaluation undertaken with respect to a client’s industry and business will vary, depending on the size of the organization, the complexity of its industry and business, and the heterogeneity of its business units. Nonetheless, it is critical for the auditor to document his or her understanding of the business so as to be able to clearly demonstrate that audit judgments are based on a full understanding of the client.
