Understanding the entity

In case of Understanding the entity and its environment – legal and regulatory framework, we would obtain understanding of

• Provision of those law & regulations generally recognized to have a direct effect.
• Provision of those law & regulations generally recognized which don't have a direct effect.
• Both

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Definition

Which of these is an example of an control that is relevant for operational purpose but not likely to be relevant for financial reporting purpose.

• a financial institution automated controls related to buying and selling investments
• a financial institution automated controls to calculate interest income on loans
• an airline system of automated controls to maintain flight schedules
• a retailer's system of revenue recognition controls within their point of sale system.

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Definition

While Understanding the entity and its environment – legal and regulatory framework, Non-compliance includes

• 1. acts of omission or commission
• 2. intentional or unintentional
• 3. Personal misconduct
• Both 1 & 2

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Definition

Whether a business risk may have an immediate or longer-term impact on the risk of material misstatement is considered in light of the entity’s circumstances. Those business risks with a longer-term consequence may be relevant when assessing the appropriateness of management’s use of the going concern assumption.

• True
• False

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Definition

Which is not included while Understanding the nature of the entity.

• Operations
• Ownership & governance structures
• marketing personnel
• Structure and financing

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Definition

Do performance measures indicate the existence of risks of material misstatement due to fraud or error, including risks arising from possible management bias.

• Yes
• No

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Definition

Which of the following is not a part of Understanding the entity and its environment.

• Relevant industry, regulatory and other external factors
• Nature of the entity
• operational team
• Measurement & review of entities financial performance

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Definition

Which ISA governs Understanding the entity and its environment.

• ISA 200
• ISA 330
• ISA 250
• ISA 315

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Definition