In the process of cognition of numerous objects (objects, phenomena), comparing their properties and signs, people make a classification. Attempts to classify organisms were made in ancient times. For a long time in science there was a system developed by Aristotle (4th century BC). He divided all known organisms into two kingdoms - plants and animals, using as distinguishing features the immobility and insensitivity of the first compared to the second. In addition, Aristotle divided all animals into two groups: "animals with blood" and "animals without blood", which generally corresponds to the modern division into vertebrates and invertebrates. Then he singled out a number of smaller groupings, guided by various distinctive features.
For almost two millennia, descriptive material was accumulated in botany and zoology, which ensured the development of taxonomy in the 17th–18th centuries, which culminated in the original system of organisms by C. Linnaeus (1707–1778), which received wide recognition. Based on the experience of his predecessors and new facts discovered by himself, Linnaeus laid the foundations of modern taxonomy. His book, published under the title The System of Nature, was published in 1735.
For the basic unit of classification, Linnaeus took the form; he introduced into scientific use such concepts as "genus", "family", "detachment" and "class"; preserved the division of organisms into the kingdoms of plants and animals. He proposed the introduction of a binary nomenclature (which is still used in biology), i.e., the assignment to each species of a Latin name consisting of two words. The first - a noun - is the name of a genus that unites a group of related species. The second word, usually an adjective, is the name of the species itself. For example, the species "caustic buttercup" and "creeping buttercup"; "golden crucian" and "silver crucian".
Of particular importance for the formation of modern taxonomy was the emergence of the evolutionary teachings of Ch. Darwin (1859). The scientific systems of living organisms created in the pre-Darwinian period were artificial. They united organisms into groups according to similar external features quite formally, without attaching importance to their family ties. Charles Darwin's ideas provided science with a method for constructing a natural system of the living world. Let's try as an analogy to build a "natural system" of such objects as books, using the example of a personal library. If desired, we can arrange books on the shelves of cabinets, grouping them either by format or by the color of the spines. But in these cases, an “artificial system” will be created, since “objects” (books) are classified according to secondary, “non-essential” properties. The "natural" "system" would be the library, where books are grouped according to their content. In this cupboard we have scientific literature: on one shelf there are books on physics, on the other - on chemistry, etc. In another cupboard - fiction: prose, poetry, folklore. Thus, we have carried out the classification of the available books according to the main property, the essential quality - their content. Having now a "natural system", we can easily orientate ourselves in the multitude of various "objects" that form it. And having acquired a new book, we can easily find a place for it in a specific cabinet and on the appropriate shelf, that is, in the “system”.
To build a system of organisms, a hierarchy (subordination) of taxonomic (systematic) units is used: species are grouped into genera, genera - into families, families - into orders, orders - into classes, classes - into types. Different types are grouped into kingdoms.
Recall that even Aristotle divided the whole multitude of living beings into two kingdoms - plants and animals. This idea persisted almost until the middle of the 20th century, when a fundamental restructuring of the entire system of higher taxa began. Back in 1934, E. Shatton (a French microbiologist) proposed to isolate bacteria into a special kingdom - prokaryotes.
But only in the 1970s. using electron microscopy and molecular biology, it was possible to establish fundamental differences between prokaryotic and eukaryotic organisms, which primarily consist in the cellular organization of representatives of these superkingdoms. The allocation of a new (third) kingdom of eukaryotes - fungi, proposed in 1969 by R. G. Whittaker (an American ecologist) and immediately accepted in the scientific world, also belongs to a few early years. Mushrooms were previously included in the plant kingdom, although they differ from the latter in the type of metabolism, and in the characteristics of the cellular organization, and in many other features.
International Standard on Auditing ISA 310, as well as Russian Auditing Standards, require that the audit organization obtain knowledge about the activities of the entity being audited to the extent sufficient to identify and understand events, financial and business operations and methods of work that can have a significant impact on the financial statements, either the audit approach or the auditor's report. Such information is used by the auditor in assessing inherent and control risk, and in determining the nature, timing, and extent of audit procedures.
The level of knowledge of the auditor includes information about the economy as a whole and the area of activity in which the audited entity operates, as well as other information about how the audited entity operates.
Prior to entering into a contract, the auditor should obtain preliminary information about the industry and ownership structure, management and work of the entity being audited and determine whether he can obtain the necessary amount of information about the activities of the entity being audited for the audit.
After the conclusion of the contract, the auditor should expand the volume and level of detail of information, therefore, during the audit, the information received earlier is evaluated, updated and replenished.
Knowledge about the activities of the audited entity is acquired through the continuous collection and evaluation of information and its correlation with audit evidence and information obtained at all stages of the audit.
For recurring audits over a number of years of a given entity, the auditor updates and re-evaluates information previously collected, including information from previous years' working papers. The auditor should also identify significant changes that have occurred since the previous audit.
The auditor can obtain information about the activities of the audited entity from various sources:
previous experience with the audited entity and its field of activity;
Interviews with employees of the audited entity;
Interviews with internal auditors and examination of reports of internal auditors;
· conversations with other auditors, lawyers and consultants who provided services to this audited entity or in this field of activity;
· conversations with specialists who are not related to this audited entity (for example, economists of this industry, representatives of industry regulators, etc.);
Publications related to this field of activity (state statistics, summarizing materials, articles, professional journals, etc.);
· regulatory legal acts regulating the activities of the audited entity;
visits to administrative buildings and industrial premises of the audited entity;
Documents directly prepared by the audited entity (minutes of meetings; materials distributed to shareholders or submitted to regulatory authorities; advertising materials; financial (accounting) statements for previous years; estimates; internal management reports, etc.).
Knowledge of the activities of the audited entity is the basis for expressing the professional opinion of the auditor. Understanding activities and proper use Such information helps the auditor:
assess risks and identify problem areas;
plan and conduct audits effectively;
evaluate audit evidence;
Ensure high audit quality and reliability of conclusions.
Knowledge of the activities of the audited entity is necessary, for example, when:
assessment of inherent risk and risk of controls;
Consideration of commercial risks and actions of the management of the audited entity in relation to these risks;
development of a general audit plan and audit program;
determining the level of materiality and assessing whether it is appropriate;
· collection of audit evidence to determine its proper nature and fulfillment of the relevant prerequisites for the preparation of financial (accounting) statements;
Evaluation of official explanations and statements of management and the estimated values determined by them;
identifying areas where any specific knowledge and skills of the auditor may be required;
Identification of affiliated persons and transactions with them;
identifying conflicting information (for example, statements that contradict each other);
detection of unusual circumstances (facts of dishonest actions, non-compliance with regulations);
preparation of qualified requests and assessment of the nature of responses to them in terms of their reasonableness;
· analysis of the proper nature of accounting policies and disclosures in the financial (accounting) statements.
The auditor should ensure that the employees performing the audit receive sufficient information about the activities of the entity being audited to enable them to perform their assigned work.
For the effective use of information about the activities of the audited entity, the auditor should analyze how the nature of this activity affects the financial (accounting) statements as a whole and whether the prerequisites for the preparation of financial (accounting) statements correspond to the auditor's knowledge of these activities.
Factors to be considered to obtain information about the activities of the entity being audited (objects of knowledge of the business)
1. General economic factors:
General level of economic activity (decline, growth);
interest rates and availability of financial resources; inflation;
government policy;
· foreign exchange rate and currency control mechanisms.
2. Features of the industry that affect the activities of the audited entity:
the market and competition;
· cyclical or seasonal activity;
changes in production technology;
• commercial risk (eg high technology, high fashion, easy market access for new competitors);
reduction or expansion of activities;
· unfavorable conditions (decrease in demand, unused production capacities, serious price competition);
basic economic indicators;
· Problems of the industry and industry specifics of accounting;
environmental requirements and problems;
· requirements of regulatory legal acts;
Availability and cost of energy resources;
· specific features of the activity (for example, in relation to employment contracts, financing methods, accounting methods).
3. Management and ownership structure of the audited entity: corporate structure - private, public, state (including any recent or planned changes);
· owners and affiliates (local, foreign, business reputation and experience);
· capital structure (including changes);
· organizational structure;
goals, principles, strategic plans of management;
Acquisitions of companies, their mergers or liquidation of certain types of economic activities (planned or recent);
· sources and methods of financing;
Board of directors (composition, business reputation and professional experience of individuals, independence from managers and control over their activities, etc.);
Managers (experience and reputation; staff turnover; key financial personnel and their status in the organization; staffing of the accounting department, etc.);
Availability and quality of work of the internal audit unit;
attitude towards the internal control environment.
4. Products, markets, suppliers, expenses, production activities of the audited entity:
· nature of economic activity (production activity, trade, financial services, import/export);
location of premises, warehouses, offices;
Characteristics of hired personnel (by location, level of wages, features of the activities of trade unions, social security, etc.);
products or services and markets (key customers and contracts, payment terms, profit margins, market share, competitors);
important suppliers of goods and services (long-term contracts, stability of supply, payment terms, imports);
Inventory (location, quantity);
franchises, licenses, patents;
· Research and development;
· assets, liabilities and transactions in foreign;
Legislation and regulations that significantly affect the activities of the entity being audited;
operating information systems; change plans;
features of loans received.
5. Factors related to the financial position and profitability of the audited entity:
main financial indicators; their changing trends.
6. The conditions under which the audited entity's financial statements are prepared, including external factors that affect management in the process of preparing financial (accounting) statements.
7. Peculiarities of legislation:
Regulatory environment and regulatory requirements; taxation;
Features of information disclosure requirements specific to this type of activity;
requirements for an audit report;
· possible users of financial (accounting) statements.
Letter of commitment to audit.
Contract for the provision of audit services. Agreeing the terms of the audit.
Rule (standard) No. 17 “Understanding the activities of the audited entity”: before entering into an audit contract, the auditor must obtain preliminary information about the industry and ownership structure, also the management and owners of the audited entity, etc.
After the conclusion of the contract for the provision of audit services, the volume and degree of totalization of information should be expanded. During the audit, previously obtained information is evaluated, updated and supplemented. The acquisition of information about the activities of the audited entity is a continuous process of collecting and evaluating information, as well as correlating it with audit evidence and information received at all stages of the audit.
Understanding the activities of the entity being audited is the basis for the expression of the auditor's professional judgment. Appropriate use of information about the entity's activities helps the auditor:
Assess risks and identify problem areas,
Effectively plan and conduct an audit,
Evaluate audit evidence
Ensure high audit quality and soundness of conclusions.
The list of issues to be considered to obtain information about the activities of the audited entity:
General economic factors (general level of economic development, interest rates, inflation, foreign exchange rate, etc.),
Features of the industry that affect the activities of the audited entity (market and competition in the industry, economic performance in the industry, reduction and expansion of activities, etc.).
Management and ownership structure of the audited entity.
Corporate organizational structure,
Shareholders and their affiliates,
capital structure,
Goals, principles and strategic management plan,
Sources and methods of financing,
board of directors and executives,
Products, markets, suppliers, production activities of the audited entity, etc.
Features of the legislation.
1. The requirements of regulatory legal acts that are applied in the course of the activities of the audited entity, including in the field of taxation,
2. Information disclosure requirements specific to this type of activity,
3. Requirements for the auditor's report,
4. Potential users of financial (accounting) statements.
The letter of engagement must be preceded by a formal proposal from the economic entity with a request for the provision of an audit and / or related services. In turn, the economic entity must confirm in writing that it agrees to the terms of the audit proposed by the audit organization.
A letter of engagement may not be drawn up if the purpose and scope of the verification are determined between the parties in a long-term contract.
The purpose of the audit of financial (accounting) statements,
The auditor's report and any other documents that are expected to be prepared as a result of the audit,
Responsibility of the management of the audited entity for the preparation and presentation of financial (accounting) statements,
The price of the audit, as well as the procedure for recognizing the services rendered and the procedure for calculating.
The audit letter may also include:
Arrangements related to the coordination of the work of the auditor and employees of the audited entity during the planned audit,
The right of the auditor to obtain from the management of the audited entity a formal written statement in connection with the audit,
The obligation of the management of the audited entity to assist in sending requests to credit institutions and counterparties of the audited entity in order to obtain information necessary for the audit,
The obligation of the management of the audited entity to ensure the presence of the auditor's employees during the inventory of the property of the audited entity.
The auditor and the management of the entity being audited must agree on the terms of the audit. These agreed terms must be documented in the contract for the provision of audit services.
TOPIC: Audit planning.
1. Audit planning: general plan and audit program.
Auditor's sample.
Materiality in audit.
The International Auditing Standard ISA 310, as well as the Russian rules (standards) of audit activity, require that the audit organization obtain knowledge about the activities of the entity being audited (knowledge of the business) in an amount sufficient to identify and understand events, financial and economic operations and methods of work that in accordance with the professional judgment of the auditor, may have a significant impact on the financial (accounting) statements, or on the approaches to the audit, or on the auditor's report. Such information is used by the auditor in assessing inherent and control risk, and in determining the nature, timing, and extent of audit procedures.
The level of auditor knowledge required to complete the audit engagement includes information about the economy as a whole and the area of activity in which the entity operates, as well as more specific information about how the entity operates.
Receiving the information. Prior to entering into a contract, the auditor should obtain preliminary information about the industry and ownership structure, management and work of the entity being audited and determine whether he can obtain the necessary amount of information about the activities of the entity being audited for the audit.
After the conclusion of the contract, the auditor should expand the volume and level of detail of information, therefore, during the audit, the information received earlier is evaluated, updated and replenished. Knowledge about the activities of the audited entity is acquired through the continuous collection and evaluation of information and its correlation with audit evidence and information obtained at all stages of the audit.
For recurring audits over a number of years of a given entity, the auditor updates and re-evaluates information previously collected, including information from previous years' working papers. The auditor should also identify significant changes that have occurred since the previous audit.
The auditor can obtain information about the activities of the audited entity from various sources:
- previous experience with this audited entity and its field of activity;
- conversations with employees of the audited entity;
- conversations with internal auditors and examination of reports of internal auditors;
- conversations with other auditors, lawyers and consultants who provided services to this audited entity or in this field of activity;
- conversations with professionals outside the entity (for example, industry economists, industry regulators, customers, suppliers, competitors);
- publications related to this field of activity (for example, government statistics, summarizing materials, articles, professional journals, reports prepared by banks and securities market participants, financial newspapers);
- regulatory legal acts regulating the activities of the audited entity;
- visits to administrative buildings and industrial premises of the audited entity;
- documents directly prepared by the entity (for example, minutes of meetings; materials distributed to shareholders or provided to regulators; promotional materials; financial (accounting) statements for previous years; estimates; internal management reports; interim reports; guidance on management policy; instructions for maintaining accounting and internal control systems; working chart of accounts; job descriptions; marketing and sales plans).
Application of acquired knowledge. Knowledge of the activities of the audited entity is the basis for expressing the professional opinion of the auditor. Understanding the activities and appropriate use of such information helps the auditor:
- assess risks and identify problem areas;
- effectively plan and conduct audits;
- evaluate audit evidence;
- to ensure high quality of the audit and the reliability of the auditor's conclusions.
Knowledge of the activities of the audited entity is necessary, for example, when:
- assessment of inherent risk and risk of controls;
- consideration of commercial risks and actions of the management of the audited entity in relation to these risks;
- developing an overall audit plan and audit program;
- determining the level of materiality and assessing whether it is appropriate;
- collection of audit evidence to determine its appropriate nature and fulfillment of the relevant prerequisites for the preparation of financial (accounting) statements;
- evaluation of official explanations and statements of management and the estimated values determined by them;
- identification of areas where any specific knowledge and skills of the auditor may be required;
- identification of affiliated persons and transactions with them; identifying conflicting information (for example, statements that contradict each other);
- discovery of unusual circumstances (for example, facts of fraud or non-compliance with regulations);
- preparing qualified requests and assessing the nature of the responses to them in terms of their reasonableness;
- analysis of the proper nature of the accounting policy and disclosures in the financial (accounting) statements.
The auditor should ensure that the employees performing the audit receive sufficient information about the activities of the entity being audited to enable them to perform their assigned work. In addition, these employees should request additional information as necessary and share this information with the auditor and other members of the audit team.
For the effective use of information about the activities of the audited entity, the auditor should analyze how the nature of this activity affects the financial (accounting) statements as a whole and whether the prerequisites for the preparation of financial (accounting) statements correspond to the auditor's knowledge of these activities.
Factors to be considered to obtain information about the activities of the entity being audited (objects of knowledge of the business)
- General economic factors:
- general level of economic activity (eg decline, growth);
- interest rates and availability of financial resources;
- inflation, currency revaluation;
- government policy (monetary, fiscal, tax, corporate, tariffs, trade restrictions, financial incentives, and government assistance programs);
- foreign exchange rate and currency control mechanisms.
- Features of the industry that affect the activities of the audited entity:
- market and competition;
- cyclical or seasonal activity;
- changes in production technology;
- commercial risk (eg high technology, high fashion, easy market access for new competitors); reduction or expansion of activities;
- adverse conditions (eg reduced demand, idle production capacity, severe price competition);
- basic economic indicators;
- problems of the industry and industry specifics of accounting;
- environmental requirements and concerns;
- requirements of regulatory legal acts;
- availability and cost of energy resources;
- specific features of the activity (for example, in relation to employment contracts, financing methods, accounting methods).
- Management and ownership structure of the audited entity:
- corporate structure - private, public, state (including any recent or planned changes); owners and affiliates (local, foreign, business reputation and experience);
- capital structure (including any recent or planned changes);
- organizational structure;
- goals, principles, strategic management plans; acquisitions of companies, their merger or liquidation of certain types of economic activities (planned or recent);
- sources and methods of financing (current, initial); board of directors (composition, business reputation and professional experience of individuals, independence from managers and control over their activities, frequency of meetings, existence of an audit committee and the scope of its activities, existence of a corporate conduct policy, facts of replacement of professional consultants, for example, lawyers);
- managers (experience and reputation; staff turnover; key financial staff and their status in the organization; staffing in the accounting department; incentive or bonus plans as part of remuneration, e.g. based on profit; use of forecasts and estimates; pressure on management, e.g. management overburdened, dominance one person, support of the share price, unreasonably tight deadlines for the announcement of results; availability and quality of management information systems);
- availability and quality of work of the internal audit unit;
- relation to the internal control environment.
- Products, markets, suppliers, expenses, production activities of the audited entity:
- the nature of the business (eg manufacturing, trade, financial services, import/export);
- location of industrial premises, warehouses, offices;
- characteristics of hired personnel (for example, by location, salary level, features of the activities of trade unions, features of social security, specific state regulation);
- products or services and markets (eg, major customers and contracts, payment terms, profit margins, market share, competitors, exports, pricing, product reputation, warranties, order book, trends, marketing strategy and objectives, manufacturing processes);
- important suppliers of goods and services (for example, long-term contracts, stability of supply, payment terms, imports, modes of delivery, such as just-in-time);
- inventory (eg location, quantity);
- franchises, licenses, patents;
- important categories of expenses;
- Research and development;
- assets, liabilities and transactions in foreign currency - by type of currency, hedging;
- legislation and regulations that significantly affect the activities of the entity being audited;
- operating information systems; change plans;
- characteristics of loans received.
- Factors related to the financial position and profitability of the entity being audited:
- main financial indicators; their changing trends.
- The conditions in which the audited entity's financial statements are prepared, including external factors that affect management in the process of preparing financial (accounting) statements.
- Features of the legislation:
- regulatory environment and regulatory requirements; taxation;
- features of information disclosure requirements specific to this type of activity;
- requirements for an audit report;
- possible users of financial (accounting) statements.
