Mich. Admin. Code R 205.2007 — Understanding audited person, including internal controls, and

assessment of risk.
Rule 7. (1) Auditors must have an understanding of all of the following as it pertains
to the audited person:
(a) Matters relating to the person’s bus iness, including its organization, operating
characteristics, business lines, and capital structure.
(b) Matters affecting the industry in wh ich the person operates , such as financial
reporting practices, economic conditions, laws and regulat ions, and technological
changes.
(c) Legal or regulatory matters affecting the person.
(d) Public information about the person.
(e) The relative complexity of the person's operations.
(2) Auditors shall obtain an understanding of the internal controls that are significant
within the context of the audit objective. Both of the following apply:
(a) The audit objective is not to conduct an audit of internal c ontrol over financial
reporting or to express an opi nion on the effectiveness of th e person's internal control
over financial reporting.
(b) Auditors should have an understanding of the internal controls in order to plan
and perform the audit to obtain appropriate evidence that is sufficient to obtain
reasonable assurance the tax liability is accurately determined.
(3) Auditors shall assess the risk that findings, conclusions, and ultimately the tax
liability may be improper or incomplete. The auditor's risk assessment and the
determination of the necessary procedures includes consideration of all of the following:
(a) The complexity of the organization, business unit, or process.
(b) The condition of the records.
(c) The cooperation of the audited person.