Activity Based Risk Evaluation Model of Auditing

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Consistency of financial statements with auditor's knowledge of the entity

At the end of the audit, the auditor will have obtained a very extensive knowledge of the client's entity, including knowledge of its business, its financial position, the results of its operations, the extent of misstatements in account balances, and the entity's cash flows. At this stage of the audit, the auditor is in a position of being able to evaluate whether the financial statements prepared by management are consistent with that knowledge.

This knowledge of the entity includes particular knowledge of:

• misstatements detected during the course of the audit and noted on the schedule of audit differences,
• events occurring subsequent to balance date, and
• the ability of the client to continue as a going concern ^[fn].

This knowledge of the entity enables the auditor to properly consider the concept of substance over form, which is a concept particularly relevant to the accuracy of presentation and disclosure of financial statement items.

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