An auditor must understand the business processes of the client to adequately test management's decisions surrounding the impairment of goodwill.

Question

Quizplus · Accepted Answer

An auditor must have knowledge and understanding of the business processes of the client to assess and evaluate management's decisions regarding the impairment of goodwill. This involves analyzing financial data, assessing the accuracy of management estimates, and closely examining the underlying factors that affect the value and potential impairment of goodwill. Failure of the auditor to have a thorough understanding of the business processes may result in inadequacies in the audit and an incorrect or incomplete opinion on the financial statements. Therefore, it is crucial for the auditor to possess the necessary knowledge and expertise in the business processes of the client to appropriately test management's goodwill impairment decisions.

An Auditor Must Understand the Business Processes of the Client