Annual Update for Accountants and Auditors: 2020

Chapter 6The Current Environment and Implications for Audit Planning

Learning objectives

• Recognize the importance of obtaining a sufficient understanding of the client and the client’s environment to effectively plan the audit in response to the risk of material misstatement.
• Indicate how key economic trends currently affecting U.S. businesses affect the auditor in assessing the risk of material misstatements.
• Identify a number of important audit planning considerations that are fundamental to every audit, particularly key responsibilities related to risk assessment.

Before we look at new standards related to audit and other attest services, we begin with a reminder of the key elements for auditors to consider when obtaining an understanding of the entity and its environment as a part of audit planning, particularly consideration of the broader business environment and a number of economic and industry factors that might affect the risk of material misstatement.

We will then review some of the recent trends in economic conditions that should be considered by auditors as they plan audit engagements for 2020–2021. Auditors should be alert for implications that recent economic developments may have on a client’s overall business risk and the resulting impact that might have on the risk of material misstatement in financial reporting, including the risk of fraud. The chapter also includes a brief reminder of key audit issues that auditors will want to be aware of as they plan ...