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It will also help them evaluate the accounting principles used by management. Auditors need to be familiar with the industry that they are auditing so that they can understand the transactions and the journal entries made by the company. They will be able to recognize what normal transactions are concerning the company. A risk factor identified with high-tech companies would be the rapid growth of technology causing inventory obsolesce.
2. What changes in Star's financial status between fiscal year-end 1988 and 1989 should have been of concern to the company's independent auditors? How should these changes have affected key audit planning decisions for the 1989 Star audit?
A major concern for the auditors from the financial statements should have been the loss from net income...
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