Which of the following procedures is usually the first step in reviewing the financial statements of a nonpublic entity?
A)Make preliminary judgments about risk and materiality to determine the scope and nature of the procedures to be performed.
B)Obtain a general understanding of the entity's organization,its operating characteristics,and its products or services.
C)Assess the risk of material misstatement arising from fraudulent financial reporting and the misappropriation of assets.
D)Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.

Question

Quizplus · Accepted Answer

Before reviewing the financial statements, the auditor should obtain a general understanding of the entity's organization, operating characteristics, products or services, and other relevant information. This helps the auditor identify the areas of significant risk and determine the scope and nature of the audit procedures to be performed. Therefore, choice (B) is typically the first step in reviewing the financial statements of a nonpublic entity. Choices (A), (C), and (D) are all important steps in the audit process but are typically performed after obtaining a general understanding of the entity.

Which of the Following Procedures Is Usually the First Step