Risk Flashcards
Audit Risk
The risk of giving an inappropriate opinion in relation to the financial statements.
Business Risk
the risk inherent to the company in its operations. Includes risks at all levels of the business
Financial Risks
Risks arising from the financial activities or financial consequences of an operation
Operational Risks
Risks arising with regards to operations e.g. a major supplier will be lost
Compliance Risk
Arises from non-compliance with laws and regulations
Inherent Risk
The susceptibility of a assertion to be misstated. E.g. complexity, subjectivity, change, uncertainty or susceptibility to misstatement due to management bias.
Control Risk
the risk that misstatements are not prevented, detected and corrected. e.g. management override, circumvention by collusion, changes in procedures, human error, cost > benefit
Detection Risk
The risk that procedures performed by the auditor to reduce audit risk will not detect misstatements.
What does ISA 315 entail?
ISA 315 requires the auditor to determine whether any of the risks identified are significant. Key examples include transactions which are subjective, high estimation uncertainty or complex models. Differing interpretations of accounting principles.
How should significant risks be documented?
- The discussion among the audit team and the significant decisions reached
- Key elements of the auditor’s understanding and their source of information
- The evaluation of the design of identified controls
- Risks at the financial statement level
- Overall response to address the risk
- Results of audit procedures and conclusions
what are indications that an entity is not a going concern?
- net liability position
- excessive reliance on short-term borrowings
- indications of withdrawal of financial support
- negative operating cash flows
- adverse key financial ratios
- inability to pay creditors or loan payments
- management intentions to liquidate the entity
- loss of a key customer
- shortage of important supplies
