ASA 300 requires an auditor to gain a reasonable understanding of the client's:
A) industry but not business.
B) business and industry.
C) business but not industry.
D) specific entity structure but not its business or industry.

Question

Quizplus · Accepted Answer

According to ASA 300, an auditor is required to have a reasonable understanding of the client's business and industry to plan and perform an effective audit. Having knowledge of the industry helps the auditor understand the economic environment in which the client operates, and the inherent risks associated with the industry. Understanding the client's business operations are important to assess the risks of material misstatement and to plan the audit approach. Therefore, option B, which states that an auditor must gain a reasonable understanding of the client's business and industry, is the best choice.

ASA 300 Requires an Auditor to Gain a Reasonable Understanding