While obtaining the understanding of the entity and the environment of the entity, the auditor has to consider various factors in which the entity performs its business. Obtaining the understanding of the entity also involves the understanding of the nature of the business of the entity, its industrial and regulatory requirements, its organizational and business strategies as well as their internal control and performance reviews and measurements.There are various risks that the financial statements of the companies are exposed to, some of which are client-specific while others are auditor specific risk. These risks are discussed in detail below.The auditors don’t 100% guarantee the fairness of the financial statements which works as a shield for the auditors but in the recent past some cases have been identified which pushes the auditors to impair their independence to obtain the fees they charge. This is a risk that should always be kept in mind that the auditors should not obtain fees for the cost of their independence.Interest in the client, whether financial or non-financial, is also a cause of the auditor’s independence impairment. The auditor may hold shares of the client which may cause the auditors to impair the independence and give a positive opinion for their reasons.A long term association with the client builds a relationship with the client which may cause the auditors to get their independence impaired. This risk can be avoided by changing the combination of the team every time the team is sent for the audit of the same client.The audit risk is specific is the risk that tan inappropriate audit opinion may be given on the financial statement by the auditors. This risk arises based on many factors that may or may not be inherent to the entity. It is one of the most fundamental aspects of the auditing process because the audit is that of a test nature.
Planning the Audit of Dart Valley Railway PLC