a. Factors to consider while obtaining information on the entity and its environment
The auditor must understand the following factors as per ISA 315:

1. Industry, Regulatory, and External Factors:
   • Includes understanding the industry’s nature, the financial reporting framework, and any applicable regulatory requirements that could affect the financial statements.
2. Nature of the Entity:
   • The auditor must gain knowledge of the entity’s operations, ownership structures, and accounting policies. This also includes assessing whether the accounting policies comply with the applicable financial reporting framework.
3. Objectives and Strategies:
   • Understanding the entity’s goals and strategies helps assess business risks that may result in material misstatements in the financial statements.
4. Entity’s Financial Performance:
   • Review of internal and external performance measures to understand which aspects of performance are critical to management and may create pressures to misstate financial statements.
5. Internal Controls:
   • The auditor needs to understand the design and implementation of internal control systems, especially those relevant to the audit, to identify potential misstatements.
6. Management Competence:
   • Auditors must evaluate the competence and experience of management, especially when management’s judgments and estimates significantly impact the financial statements.

b. Why the auditor needs to perform risk assessment and the procedures
Risk assessment is crucial for the following reasons:

1. Identifying Material Misstatements:
   • Risk assessment procedures help the auditor identify areas of potential misstatement in the financial statements. These misstatements could arise due to fraud, errors, or issues with internal controls.
2. Designing Effective Audit Procedures:
   • By identifying risks, the auditor can tailor the audit strategy and procedures to focus on the areas most likely to contain material misstatements, thereby improving audit efficiency and effectiveness.

Risk Assessment Procedures Include:

i. Inquiries of Management:

• Asking questions to management or others within the entity who may have information relevant to identifying fraud or error.

ii. Analytical Procedures:

• Analyzing financial ratios, trends, and other data to identify unusual transactions or balances that could indicate misstatements.

iii. Observation and Inspection:

• Inspecting records and observing the entity’s operations to assess risks in control processes and identify potential misstatements.