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Risk

Risk assessment

3.1 Purpose of risk assessment

 Identify areas of the financial statements where misstatements are likely to
occur early in the audit.

 Plan procedures that address the significant risk areas identified.

 Carry out an efficient, focused and effective audit.

 Reduce the risk of issuing an inappropriate audit opinion to an acceptable level.

 Minimise the risk of reputational and punitive damage.

3.2 Risk assessment procedures

 Enquiries with management, of appropriate individuals within the internal audit
function (if there is one), and others (with relevant information) within the client
entity (e.g. about external and internal changes the company has experienced)

 Analytical procedures

 Observation (e.g. of control procedures) and inspection (e.g. of key strategic
documents and procedural manuals).

3.3 Responses to risk assessment

 Assign more experienced staff to risk areas

 Increase supervision levels

 Increase the element of unpredictability in sample selection

 Change the nature, timing and extent of procedures

 Increase the emphasis on substantive tests of detail

 Emphasise the need for professional scepticism

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