Page 132 - AA Integrated Workbook STUDENT 2018-19

Chapter 83 4

3.2 Entity’s risk assessment process

The process by which management in a business identifies business
risks relevant to financial reporting objectives and decides what actions
to take to address those risks.

The risk assessment process will involve the following steps:

Identify Decide on
relevant Estimate the Assess the actions to
business significance likelihood of address the
of the risks occurrence
risks risks

Threats to business objectives can lead to misstatement in the financial statements,
e.g. non-compliance with laws and regulations may lead to fines and penalties, which
require disclosure or provision in the financial statements.

If the client has robust procedures for assessing the business risks it faces, the risk
of misstatement overall will be lower

3.3 Information system

The information system is all of the business processes relevant to financial reporting
and communication. It includes the procedures within both information technology
and manual systems.

The information system includes all of the procedures and records which are
designed to:

 Initiate, record, process and report transactions.

 Maintain accountability for assets, liabilities and equity.

 Resolve incorrect processing of transactions.

 Process and account for system overrides.

 Transfer information to the general/nominal ledger.

 Capture information relevant to financial reporting for other events and
conditions.

 Ensure information required to be disclosed is appropriately reported.

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