Mich. Admin. Code R. 205.2007 - Understanding audited person, including internal controls, and assessment of risk
(1) Auditors must have an understanding of all of the following as it pertains to the audited person:
(a) Matters relating to the persons business, including its organization, operating characteristics, business lines, and capital structure.
(b) Matters affecting the industry in which the person operates, such as financial reporting practices, economic conditions, laws and regulations, and technological changes.
(c) Legal or regulatory matters affecting the person.
(d) Public information about the person.
(e) The relative complexity of the person's operations.
(2) Auditors shall obtain an understanding of the internal controls that are significant within the context of the audit objective. Both of the following apply:
(a) The audit objective is not to conduct an audit of internal control over financial reporting or to express an opinion on the effectiveness of the person's internal control over financial reporting.
(b) Auditors should have an understanding of the internal controls in order to plan and perform the audit to obtain appropriate evidence that is sufficient to obtain reasonable assurance the tax liability is accurately determined.
(3) Auditors shall assess the risk that findings, conclusions, and ultimately the tax liability may be improper or incomplete. The auditor's risk assessment and the determination of the necessary procedures includes consideration of all of the following:
(a) The complexity of the organization, business unit, or process.
(b) The condition of the records.
(c) The cooperation of the audited person.
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