Risk Assessment Flashcards
Define Business risk
Risks that could adversely affect an entity’s ability to achieve its objectives and execute strategies
FOC
What are the types of business risk?
- Physical - due to climate change.
- Transition - linked to lower-carbon economy.
Define Audit Risk.
Auditor expresses an inappropriate opinion on the FS.
Risk of MM
Detection Risk
Define Risk of MM
FS are MM prior to audit completion.
Inherent Risk
Control Risk
Why is assessing RMM at the Assertion level important? (3)
- Audit evidence is gathered efficiently and effectively.
- Procedures address the specific ways misstatements could occur.
- The financial statements provide a true and fair view.
Define Inherent Risk.
The likelihood that a MM could occur in the financial statements before considering any ICs.
It arises naturally due to the complexity, estimation, or susceptibility of certain accounts or transactions to errors or fraud.
Define Control Risk.
A misstatement is not prevented, detected or corrected by entity’s controls.
Define Detection Risk.
Procedures performed by auditor do not detect a misstatement that could be material.
Significant risks (6)
CASCAS
Complexity in data collection / processing.
AC estimates with high estimation uncertainty.
Subjective transactions.
Changes in entity’s business.
Account balances - complex calcs.
Subjective AC principles.
Risk Assessment Questions:
Tips for Justifying risk area.
Balance misstated
Balance under/overstated
Gather evidence
Analytical procedures
Financial / non-financial items
- why the balance may be misstated.
- whether balance is over/under stated.
- potential difficulties in gathering evidence.
- analytical procedures to support point.
- compare financial to non-financial items
What Audit Risk is identified from these factors: Rapid expansion, Renewal of major contracts, Difficult trading conditions.
Going Concern Risk.
