Page 102 - AAA Integrated Workbook STUDENT S18-J19

Chapter 73 4

4.3 Business risk

A business risk is one resulting from ‘significant events, conditions, circumstances,
actions or inactions that could adversely affect an entity's ability to achieve its
objectives and execute its strategies’.

Most business risks will eventually have financial consequences, and therefore an
effect on the financial statements. If the client does not account for these issues in
the correct manner, the financial statements could be materially misstated.

Auditors must assess business risk in order to:

 Develop business understanding

 Increase the likelihood of identifying specific risks of material misstatement

 Evaluate overall audit risk.

4.4 Significant risks

As part of the risk assessment process auditors have to consider the significance of
the identified risks, including:

 Whether the risk is one of fraud.

 Whether it is related to recent economic, accounting or other developments that
require specific attention.

 The complexity of the related transactions.

 Whether it involves related parties.

 The degree of subjectivity involved in measuring financial information.

 Whether it involves transactions outside the normal course of business

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