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Hi Mike,
1. Can I know what’s a financial statement risk? And how and why does sometimes the financial statements risks are related to business risks ?
2. Can I know why analytical procedures are more suited to large volume transactions?
Thanks.
Financial statement risk is, in part, a risk facing the directors of a company in that the accounting records of the company are not sufficient to enable the timely preparation of reliable financial statements
If accounting controls and / or internal controls are lacking in their effectiveness, then the processes of recording transactions may not be relied upon giving rise to financial statements which are potentially not free from material misstatement
But inadequate accounting controls is not the only potential cause of financial statement risk. If the company does not have a competent finance department (and particularly a competent chief financial officer) then again there exists a risk that the financial statements will contain material misstatement
Business risk is a risk that any business faces.
The concept of business risk includes such obvious ones as:
increased competition
new market
new management
heavy dependence on a single market
heavy dependence on a single product
sheavy dependence on a single supplier
heavy dependence on a single person
heavy dependence on a single on a single anything!OK?
Why are analytical procedures more suited to large volume transactions?
Because a sample selected from a small population will be representative only of itself whereas a sample selected from a large population is more likely to reasonably represent that population
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