Gaining client's knowledge and assessment of risks of misstatements


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Dear fellows,

I am preparing for my CA final exams and I need to clear some auditing concepts. I am studying ISA 315 Identifying risks of material misstatements through understanding the entity and it's environment. It contains what information an auditor needs to obtain to assess risks of misstatements. However, in respect of various kinds of info that auditor is supposed to obtain, I couldn't understand the motive or ultimate purpose of obtaining that info. My understanding is that an auditor obtains info about an entity and it's environment to identify business risks that it faces some or all of which eventually turn up as risks of misstatements. Due to my sketchy understanding of the subject, I have failed to connect how governance structure has a relationship with material misstatement. Similarly, I have no clue how installed capacity has a relationship with business risk or audit risk. What I need is a clarification of concept on how to relate the info that is required to be obtained by an auditor with risks of misstatements in financial statements.
 
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