The auditor shall obtain an understanding of the information system, including the related business processes, relevant to financial reporting, including the following areas:
- The classes of transactions in the entity’s operations that are significant to the financial statements;
- The procedures, within both information technology (IT) and manual systems, by which those transactions are initiated, recorded, processed, corrected as necessary, transferred to the general ledger and reported in the financial statements;
- The related accounting records, supporting information and specific accounts in the financial statements that are used to initiate, record, process and report transactions; this includes the correction of incorrect information and how information is transferred to the general ledger. The records may be in either manual or electronic form;
- How the information system captures events and conditions, other than transactions, that are significant to the financial statements;
- The financial reporting process used to prepare the entity’s financial statements, including significant accounting estimates and disclosures; and
- Controls surrounding journal entries, including non-standard journal entries used to record non-recurring, unusual transactions or adjustments.
The auditor shall obtain an understanding of how the entity communicates financial reporting roles and responsibilities and significant matters relating to financial reporting, including:
- Communications between management and those charged with governance; and
- External communications, such as those with regulatory authorities.