5.11 (35 marks 42 minutes) ISA 315 (Revised) - Identifying and assessing the risks of material misstatement through understanding the entity and its environment, states that the auditor should obtain an understanding of the entity and its environment. It is an important statement in the planning of the audit. 1. What is the auditor's overall objective of gaining an understanding of the entity and its environment? 2. List six broad areas or aspects of conducting an audit for which having a thorough knowledge of the entity, will greatly assist the auditor. (3) 3. Audit procedures to obtain an understanding of the entity are referred to as "risk assessment procedures." Identify three categories of risk assessment procedures and give two examples of each category. 4. ISA 315 (Revised) requires that "the members of the engagement team should discuss the susceptibility of the entity's financial statements to material misstatement." Explain 112 the reasoning behind getting the members of the audit team collectively involved in this discussion. 5. The auditor's understanding of the entity and its environment consists of an understanding of five aspects. The first is "the industry, the regulatory framework and other external factors." What are the other four? 6. In terms of ISA 315 (Revised), a company's internal control process consists of five components. Describe each component in not more than 20 words. 7. Identify five potential benefits of information technology for a company's internal control system. 8. Identify five specific risks to a company's internal control, where the financial information systems are computerized. 9. What is a significant risk? Give three examples. 10. Does the auditor assess the risk of material misstatement at the: 10.1 financial statement level 10.2 assertion level 10.3 financial statement level and at the assertion level