Statements of Auditing Standards in Taiwan
　 　 　
　 SAS No. 37  Knowledge of the Business 　
                        
　 　
　 Status 　
　 　 　
　 Issued by Auditing Standards Committee in Taiwan on 18 December, 2001. 　
　 　 　
　 Summary 　
　 　 　
　 In performing an audit of financial statements, the auditors should have or obtain knowledge of the business sufficient to enable the auditor to identify and understand the events, transactions and practices that, in the auditor’s judgment, may have a significant effect on the financial statements or on the examination or audit report. 　
　 　 　
　 The auditor’s level of knowledge for an engagement would include a general knowledge of the economy and the industry within which the entity operates, and a more particular knowledge of how the entity operates. 　
　 　 　
　

The auditor can obtain knowledge of the industry and the entity from:

l           Previous experience with the entity and its industry.

l           Discussion with people with the entity.

l           Discussion with internal audit personnel and review of internal audit reports.

l           Discussion with other auditors and with legal and other advisors who have provided services to the entity or within the industry.

l           Discussion with knowledgeable people outside the entity.

l           Publications related to the industry.

l           Legislation and regulations that significantly affect the entity.

l           Visits to the entity’s premises and plant facilities.

l           Documents produced by the entity.

 　

　

　

　

　

Understand the business will help the auditor in:

l           Assessing risks and identifying problems.

l           Planning and performing the audit effectively and efficiently.

l           Evaluating audit evidence.

l           Providing better service to the client.

　
　 　 　
　

Knowledge of the business is important when the auditor makes judgment about the following matters throughout the course of the audit:

l           Assessing inherent risk and control risk.

l           Considering business risk and management’s response thereto.

l           Developing the overall audit plan and the audit program.

l           Determining a materiality level and assessing whether the materiality level chosen remains appropriate.

l           Assessing audit evidence to establish its appropriateness and the validity of the related financial statement assertions.

l           Evaluating accounting estimates and management representations.

l           Identifying areas where special audit consideration and skills may be necessary.

l           Identifying related parties and related party transactions.

l           Recognizing conflicting information.

l           Recognizing unusual circumstances.

l           Making informed inquiries and assessing the reasonableness of answers.

l           Considering the appropriateness of accounting policies and financial statement disclosures.

 　
　 　 　
　 For effective use of knowledge about the business, the auditor should consider how it affects the financial statements taken as a whole and whether the assertions in the financial statements are consistent with the auditor’s knowledge of the business. 　
　
Effective date  
　
　 This Statement is effective from 1 July, 2002. 　
　 　 　
　 　 　
　 　 　
　 　 　

Copy right(c) 2006 Accounting Research and Development Foundation in Taiwan
Address: 20th. F., No.17, Sec.1, Chengde Rd., Taipei, Taiwan
Tel:886-2-2549-0549