AS 2110 provides the following guidance regarding the auditor’s need to obtain an understanding of the company’s selection and application of accounting principle:
As part of obtaining an understanding of the company’s selection and application of accounting principles, including related disclosures, the auditor should evaluate whether the company’s selection and application of accounting principles are appropriate for its business and consistent with the applicable financial reporting framework and accounting principles used in the relevant industry. Also, to identify and assess risks of material misstatement related to omitted, incomplete, or inaccurate disclosures, the auditor should develop expectations about the disclosures that are necessary for the company’s to be presented fairly in conformity with the applicable financial reporting framework.
Read through AS 2110 (you can find it on the PCAOB website) and identify the specific issues that are relevant to the necessary under- standing of the company’s selection and application of accounting prin- ciples, including related disclosures.
