Question

breifly explain
factors considered essential for the audit of a company ​

Answer 1

Answer:

The factors considered essential for the audit of a company are:

Level of assessing and controlling risk.

Internal and external regulatory processes.

The cost of capital.

Quantum and size of various operations.

Complexity of operations.

Answer 2

Auditing is an impartial review of financial records of any organization, regardless of its legal type, status or scale, whether or not profit-oriented, in order to convey an opinion about such an organization.

Explanation:

That  there  are 5  main  aspects (factors)  of  the  client’s  business  and  environment  that the  auditor  should understand

1. Industry, regulatory and other external factors, as well as the applicable financial reporting framework: This means an understanding of the market, including price rates, the essence of ties with suppliers and consumers and the level of technology used in the market. The industry may have specific legislation and regulations affecting the business. More general economic considerations, such as interest and exchange rate fluctuations, and their possible effects on consumers, should also also be taken into account by the auditor. The relevance of these concerns is their possible effect on financial statements and on audit preparation. For example, if a customer operates in a highly regulated sector, an person with specific expertise or knowledge of such regulations may be considered for inclusion in the audit team. The financial reporting system requires rules, for example, as to whether it uses local or international financial reporting standards.
2. Nature of the entity and its accounting policies: This requires an overview of the company's legal framework (as applicable group), ownership and management framework, and the company's principal sources of funding. The possibility of material errors may increase complicated ownership structures with numerous companies and/or locations. The knowledge of the company's existence often requires an understanding of the accounting practices chosen and applied to financial statements. The auditor must examine whether the applicable financial reporting framework complies with the accounting policies.

1. Objectives and strategies and related business risks: The company management will identify the business goals which are the company's overall plans. Strategies are the organizational strategies by which management aim to achieve the established goals. For instance, an strategy may be optimizing market share, and each year, a new brand or product may be launched. Business risks are variables that could prevent the company from attaining its stated objectives, e.g. releasing a product that has little demand. Lastly, the most financial consequences of corporate risks will affect financial accounts. This is why auditors perform  business  risk assessment as part of their planning procedures.
2. Measurement and review of the entity’s financial performance: In this case the auditor seeks to understand the performance metrics that management and others consider as relevant. Performance assessments will pressure management to take action by intentional misstatement to improve the financial statements. A bonus payable to administration based on sales growth, for example, may lead to unnecessary sales pressure. The auditor will therefore learn about the main financial and non- performance metrics, priorities, budgets and segmental details of the business.
3. Internal Control: In order to understand how various aspects of the internal control could affect the audit, the auditor must gain insight into the internal controls. The management climate, the risk evaluation processes of the organization, information systems, compliance activities and monitoring management are included in internal controls. Simply put, an assessment of internal control strength or weakness is an essential factor for the audit risk evaluation and has an significant effect on the audit strategy. The design and implementation of checks should be taken into account as part of an understanding. The auditor will also know if manual or automatic controls are

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