What are the key components of a financial statement audit?

The key components of a financial statement audit include a comprehensive approach that encompasses multiple crucial steps to ensure the effectiveness and accuracy of the audit process.

Planning is the initial stage where the audit team prepares for the audit, determining the scope and objectives and allocating resources effectively. Understanding the entity involves gaining insight into the business's nature, operating environment, and internal controls, which helps auditors assess how these factors impact the financial statements and the associated risks.

Assessing risks is a critical component in which auditors identify and evaluate the risks of material misstatement in the financial statements, whether due to fraud or error. This risk assessment informs the nature, timing, and extent of the audit procedures.

Finally, forming an opinion is the culmination of the audit process. Based on the evidence gathered during the audit, the auditor expresses an opinion on whether the financial statements are presented fairly and are in accordance with the applicable financial reporting framework.

This comprehensive approach outlined in the correct choice reflects the thoroughness of the audit process while ensuring that auditors perform their work systematically and meaningfully. Other choices do not encompass the full scope of an audit, omitting crucial steps such as understanding the entity and forming an opinion, thereby lacking a complete representation of the audit process.