busines Risk and audit risk

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    mukuvaris
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    busines Risk and audit risk are cofusing to apply in a scenario question anyone to help me


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    salle205
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    • Topics: 2
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    Business risks are basically risks that may inpact on company’s profitability and going concern status.

    while Audit risks is made up of inherent risks, control risks and detection risks.

    Inherent risks – refers to transation that are high risk by thier nature (eg oil indutries could be classifed as having high inherent risk due to the complexity of its transactions, processes and constant fluctuation in oil prices, complex financial instruments have high inherent risks, cash transactions etc)

    control risks – risk that internal control is not strong enough to prevent and detect material mis-statements whether by error or fraud.
    this could lead to a business risk as a fraud due to weak control for a substantial amount will definately impact on company’s cashflow/liquidity & going concern depending on its significance.

    Detection risks – risks that auditors give wrong audit opinion either due to mis-judgement of client’s internal control system, poor planning strategy leading to non-identification of high risk areas, sampling issues, poor practice management etc.

    Some audit risks could lead to business risks if it impacts on profitability and going concern, so for every risk question you need to ask yourself if it impacts on profitability and going concern (then its a business risk), where a risk of material misstatement exists of wrong classification, non recognition, inaccurate amount, presentation, non disclosures (then its a finacial statement risk).

    hope this makes sense

    thanks
    Osa


    avatar
    salle205
    Participant
    • Topics: 2
    • Replies: 32

    Business risks are basically risks that may inpact on company’s profitability and going concern status.

    while Audit risks is made up of inherent risks, control risks and detection risks.

    Inherent risks – refers to transation that are high risk by thier nature (eg oil industries could be classifed as having high inherent risk due to the complexity of its transactions, processes and constant fluctuation in oil prices, complex financial instruments have high inherent risks, cash transactions etc)

    control risks – risk that internal control is not strong enough to prevent and detect material mis-statements whether by error or fraud.
    this could lead to a business risk as a fraud due to weak control for a substantial amount will definately impact on company’s cashflow/liquidity & going concern depending on its significance.

    Detection risks – risks that auditors give wrong audit opinion either due to mis-judgement of client’s internal control system, poor planning strategy leading to non-identification of high risk areas, sampling issues, poor practice management etc.

    Some audit risks could lead to business risks if it impacts on profitability and going concern, so for every risk question you need to ask yourself if it impacts on profitability and going concern (then its a business risk), where a risk of material misstatement exists of wrong classification, non recognition, inaccurate amount, presentation, non disclosures (then its a finacial statement risk).

    hope this makes sense

    thanks
    Osa


    avatar
    mukuvaris
    Participant
    • Topics: 4
    • Replies: 7

    thanxs v much, you have enlightened me, and m,y other question is as follows:

    iam having problems in designing audit procedures especially where the examiner request for principal audit procedures pertaining to an accounting area when iam practising my answer and then comparing to the suggested one by the examiner they will be so different, so anyone to help no the way foward as the exams is around the corner


    avatar
    salle205
    Participant
    • Topics: 2
    • Replies: 32

    Wen considering principal audit procedures use the mnemonic AEIOU and PROVE. where A- analytical procedures, E- enquiry of managemant, I- inspection, O- observation, U- recalculation. P- presentation, R- report in terms of completeness and cut-off period. O- ownership of asset, liability, V- valuation, E- existence.

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