The extent of the auditor’s planning depends on the nature of the client and the experience of the auditor with that client. For example, planning for the audit of a new client is more extensive than planning for the audit of an existing client. In audit planning for new clients, How does an auditor learn about client’s business?

When planning the audit, the auditor should have knowledge of the client’s operations—other than macro economic and client’s industry.

For a new client, the primary sources of information are discussions with the predecessor auditor and inquiries of client management. During the discussion, the auditor should obtain enough knowledge about the client’s business, organization, and operations to understand the events, transactions, and practices that may have an effect on financial statements. According to AU 311.07, the auditor should obtain knowledge of matters such as: type of business, types of products and services, capital structure, related parties, business locations, production and distribution methods, and compensation methods.