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If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses you can purchase one at a time or have a subscription model giving you access to all the courses courses which are well organized have other resources like Excel files and PDF files to download and no commercials considering factors that include nature of the entity industry regulatory and external factors internal control objectives strategies and business risks and entity performance measures auditor will obtain information to understand the nature of the entity so what type of information are we going to get we're going to gather this information to understand the nature of the entity we want to gather information related to business operations ownership and governance structures investments and investment activities financing and financing activities and financial reporting so we're going to gather information related to these areas we're going to go into a few of these areas in more detail starting with the business operations business operations the type of things that we're going to gather in order to understand the entity includes revenue sources products and services so what obviously do they do for revenue sources what products and services do they have that's going to be a primary important type of activity when we're trying to understand the nature of the business conduct and operations we want to know who their alliances are joint ventures if they have any joint ventures outsourcing of activities do they outsource some of their activities are they key activities are they very important how dependent are they to people like joint ventures alliances and other people involved because that'll assess some of our risk factors with regards to them then we have the product facility locations obviously where are they located how many facilities do they have where do you produce these products where are they located at warehouse and offices locations so we also want to understand where the offices are where the inventory is stored where the office locations are at where's the admin done business done are there any key customers who are your key customers if they're in the type of industry where we have some very large customers we want to make sure that we understand that because larger customers or consolidation of larger customers could be a concern because then we want to make sure that they're solid because if they're not that could be a problem key suppliers is the same thing do we have large suppliers i mean as a lot of the stuff that we sell coming from a particular supplier if so the company is obviously very dependent on that supplier and that's going to be a significant factor to consider when considering the environment and risk related to it investment and investment activities so we're going to understand the entity with regards to investment and investment activities asking questions or looking into factors including our recent or planned acquisitions or divestitures so what type of type of investments or divestitures might be planned or made of course we're looking for usually substantial material type of items investments and dispositions of securities and loans uh capital investment activities as well as investments in partnership and joint ventures again of course we're typically looking for the larger scale type of items here when we're considering the business as a whole considering material type of factors financing and financing activities so we're trying to understand this business what kind of financing do they have in order to help them generate or or push forward with their operations what kind of financing activities do they do so we want to know if there's any subsidiaries and associated entities so do they have any associated type of entities related to them uh that they could be involved in their financing structure debt structure so what kind of debt structure do they have and we're going to want to know the leasing uh arrangements if any related parties again related parties can be a significant factor with regard to financing and financing activities use of derivative financial instruments are they using derivative financial instruments because of course that can add to some complexity with that type of of instrumentation that we may need actually some specialization in order to fully understand that type the auditor must identify and understand the entities objectives strategies and use to achieve those objectives and business risk associated with those objectives and strategies so you'll note as we get this understanding of the business as we go through these factors and understand them better this is the overarching objective we're looking into what is the entities objective obviously revenue generation we would as suppose would be part of the objective but what's their what's their strategy for this objective strategies used to achieve the objective what do they put in place in order to get to that particular goal we need to have an understanding of that so we know the nature of the business and therefore can better audit it and then we want to know the business risk associated with those objectives and strategies so what are the risks of the objectives in and of themselves the industry where they're at and the risks of the strategies that they are implementing are they implementing strategies that are more or less risky as they try to achieve certain types of objectives all these can be factors for helping us to assess what type of testing we need to do within the audit engagement