Factors that influence decision making

Topics: Audit, Auditing, Internal control Pages: 7 (2057 words) Published: November 12, 2013


QUESTION:

TABLE OF CONTENTS

Table of contents………………………………………………………………………………….2

1.0.Introduction..............................................................................................3

2.0.Understanding of the client and its environment.......................................................................3 2.1.Internal Control.........................................................................................................................3 2.2.External factors understanding.................................................................................................4 2.3.0.Objective and Strategies and Related Bussiness Risks.............................................................4 3.0.Types of Bussiness risks.............................................................................................................4 3.1.External risks.............................................................................................................................5 3.2.Internal Risks:............................................................................................................................5 3.3.Operationa risk..........................................................................................................................6 3.4.Financial risk..............................................................................................................................6 3.5.Compliance risk..........................................................................................................................6 3.6.Rationale of business risk approach:..........................................................................................6 4.0.Auditor’s concern on Business risk.............................................................................................7 5.0.Conlusion................................................................................................................................7-8 Reference

1.0.Introduction.
Risk is defined as a threat which could mean that a bussiness fails to meet an ongoing business objective.Business risks represent problems which are faced by management of a business and these problems should be identified and assessed for their impact on the bussiness.Business risks has always direct impact on financial statements of the entity hence causig financial statement risks.1 Financial statement risk is the risk that components of financial statements could be misstated,through innacurate or incomplete recording of transactions or disclosure.Financial statement risk therefore represent potential errors or delibarate misstatements in the published accounts of the bussiness.2 2.0.Understanding of the client and its environment.

Obtain an understanding of the client and its environment is one of the important steps of audit process.An auditor must gather sufficient background information to assess the risks of material misstatement of the financial statements and to design the nature,timing and extent of further audit procedures.Risk assessment procedures used to gather this information and include inquiries of management,analytical procedures,observation and inspection,and other procedures.At this stage of the audit,the auditors are attempting to obtain an overall understanding of the client and its environment,including its objectives and strategies and related bussiness risks,the manner inwhich management measures and reviews financial performance,and the client’s internal control. The auditors’consideration of control risk involves analyzing the design and implementation of internal control to decide whether the internal control system appers adequate to prevent or detect and correct material misstatements. From the process of understanding the client’s environment, it is when an auditor may be in position to identify the risks associated from within and those associated from outside...
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