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Understanding the entity and its environment

AUD Chapter 10 · Area II · Blueprint II.B

You cannot judge whether numbers look wrong unless you know what right looks like for this business in this economy. The Blueprint puts basic economics inside AUD for that reason, and adds the corporate governance rules of the Sarbanes-Oxley Act. The economics is tested at the remembering level, with simple calculations.

In this chapter

1. Why the auditor studies the business
2. Supply and demand
3. Elasticity: how sensitive are buyers?
4. Profit maximization: marginal revenue and marginal cost
5. The business cycle and economic indicators
6. From the economy to audit risk
7. Internal factors: knowing the entity itself
8. Sarbanes-Oxley: corporate governance duties of the entity

This chapter has 8 lessons, 50 practice MCQs with explanations and 16 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Supply and demand, elasticity, marginal cost and revenue
• business cycles and economic indicators
• industry and regulatory factors
• SOX governance duties
• the nature of the entity, including its use of AI

Chapter 9: Planning: overall strategy and the engagement plan · Chapter 11: Internal control: COSO, the control environment and IT general controls