The types of knowledge knowledge that Domingo Domingo must obtain obtain to plan the engagement for for his prospective prospective client which is a nancial institution are: •
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Relevant industry, regulatory and other external factors including the applicable nancial reporting framework for nancial institutions Nature of the entity, including: o perations o wnership and governance structures o Types Types of investments investments the entity makes and and plans to make make o !ay that the entity is structured and how it is nanced, classes of transactions, account balances"opening and prior period balances# and disclosures disclosures to be expected in the nancial statements $election and application of accounting policies, including reasons for changes thereto b%ectives and strategies and related business risks &easurement and review of nancial performance 'nternal control Supplementary Supplementary information:
Business operations ( such as: ) Nature of revenue sources, services, and markets, including involvement in electronic commerce such as 'nternet marketing activities* o Role as nancial intermediaries ) +onduct of operations "for example, stages and methods of lending money , or activities exposed to environmental risks#* ) lliances, %oint ventures, and outsourcing activities* ) -eographic dispersion and industry segmentation* ) .ocation of facilities, o/ces, and other branches branches ) 0ey customers and employment arrangements "including the existence of union contracts, pension and other post employment benets, stock option or incentive bonus arrangements, and government regulation related to employment matters# ) Research and development activities and expenditures* ) Transactions with related parties* • Investments and investment activities ( such as: ) 1lanned or recently executed ac2uisitions or divestitures* ) 'nvestments and dispositions dispositions of securities and loans* ) +apital investment activities* ) 'nvestments in non3consolidated entities, including partnerships, partnerships, %oint ventures and special3purpose entities* 4 Financing and nancing activities ( such as: ) &a%or subsidiaries subsidiaries and associated entities, including consolidated and nonconsolidated structures* o Types Types of bonds bonds issued and and other marketable marketable securities securities
5ow to obtain6
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bservation of entity7s activities and operations 'nspection of documents"business plans and strategies# , records, and internal control manuals Reading of reports prepared by management"2uarterly management report and interim nancial statements# and those charged with governance"minutes of board meetings# 8isits to premises and facilities Discussion with people within and outside the entity Reading books, periodicals and other publications related to nancial institutions
Discuss how this knowledge of the client and its environment will help Domingo in planning and performing an audit in accordance with 1hilippine $tandards in uditing6 The knowledge he obtained of his client and its environment will help him in planning and performing audit by being an aid in: • •
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ssessing risks and identifying potential problems Doing the planning and performance of the audit e9ectively and e/ciently valuating audit evidence as well as the reasonableness of client7s representations and estimates 1roviding better service to the client Determination of the consistency of the assertions to what is really in the business
xplain specic ways that the knowledge gained by $ison during the plant tour may help in planning and conducting the audit* •
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During the plant tour, $ison will surely be observing the internal control procedures and processes and most probably will notice some material defects or inade2uacy in it and other material misstatements resulting from weak internal control systems of the entity* This will be a great help in planning the audit as to what extent the substantive testing will be conducted* 1lant tour will also will give him information as to what really is the nature of the entity* Transactions that will most probably be and should be existent both in the records and the operations will be identied* 5e will also be given a hint on what transactions will be focused on during the audit which are associated with di9erent kinds of risk*