SECTION III: NATURE OF THE ENTITY

AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, indicates that the nature of an entity refers to the entitys operations, its ownership, governance, the types of investments that it is making and plans to make, the way that the entity is structured, and how it is financed. Among other procedures, complete AUD-815 Audit Program: Related-Party Transactions to assist in obtaining an understanding of certain higher-risk elements of the nature of the entity. Also consider completing steps 1 and 2 of AUD-816 Audit Program: Fair Value Measurements and Disclosures if you are aware of a significant fair value measurement or disclosure.

4. Business Operations

For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to business operations.

Factor	Considered? (Yes, N/A)	Our Understanding	Procedures We Performed to Gain Our Understanding
Entitys organizational structure and management personnel.
Entitys operating characteristics, including its size and complexity.
Revenue sources (e.g., manufacturer, wholesaler, banking, insurance or other financial services, import-export trading, utility, transportation, and technology products and services), including the relative profitability of key products and services.
Products or services and markets (e.g., major customers and contracts, terms of payment, profit margins, market share, competitors, exports, pricing policies, reputation of products, backlog, trends, marketing strategy and objectives, and manufacturing processes).
Key customer relationships.
Product warranties.
Developing or offering new products or services, or moving into new lines of business.
Conduct of operations (e.g., stages and methods of production, subsidiaries or divisions, delivery of products and services, and details of declining or expanding operations).
Alliances, joint ventures, and outsourcing activities.
Involvement in e-commerce, including Internet sales and marketing activities.
Geographic dispersion and industry segmentation.
Operations in regions that are economically unstable (e.g., countries with significant currency devaluation or highly inflationary economies).
Operations exposed to volatile markets (e.g., futures trading).
Going-concern and liquidity issues, including loss of significant customers.
Locations of production facilities, warehouses, and offices.
Important suppliers of goods and services (e.g., long-term contracts; stability of supply; terms of payment; imports; and methods of delivery, such as just-in-time).
Purchase commitments.
Anticipated losses on long-term contracts.
Employment (e.g., by location, supply, age levels, union contracts, pension and other post-employment benefits, share option or incentive bonus arrangements, and government regulation related to employment matters).
Research and development activities and expenditures.
Transactions with related parties (this would also encompass obtaining a complete listing of related parties from management).
Pending or threatened litigation or contingent liabilities.
Environmental remediation liabilities.