BUS 426 Chapter Notes - Chapter 8: Audit Risk, Analytical Review, Risk Assessment

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Phase 1: have a clear understanding of the risks of material misstatement before accepting the client. Phase 2: develop client risk profile by understanding the client"s business and industry to access client business risk and to assess the risk of fraud overall. Understand client"s business and industry: internal and external environment. Risks associated with specific industries may affect the auditor"s assessment of client business risk. Certain inherent risks are common to all clients in certain industries, ex: obsolete fashion goods. Many industries have unique accounting requirements that the auditor must understand: business operations and processes. Auditor should understand the client"s major source of revenue, key customers, major suppliers, etc. Identifying related parties to see if they are arms length. Examining the client"s technology infrastructure: management and governance. Legal documents to examine: articles of incorporation, bylaws, minutes of board of directors and shareholders, contracts and code of ethics. Articles of incorporation: documents that recognizes a corporation as a separate entity.

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