Summary of what risks are for the audit context, the difference between business and audit risk as well as how to answer material risk questions. Components of Audit risk are discussed and explained.
Risk Management
Risk: A probability or threat of damage, injury, liability, loss or any other negative
occurrence that is caused by external or internal vulnerabilities and that may be
avoided through pre-emptive action”
“a condition in which there exists a quantifiable dispersion in the possible outcome
from an activity”.
BUSINESS RISK
O Business or operational:
O relating to the activities carried out within an organisation
O Financial and Market:
O relating to the financial operation of a business
O Environmental:
O relating to changes in the political, economic, social and financial
environment.
O Reputational:
O caused by failing to address some other risk.
O International risk:
O risks associated with international operations can be classified as
transaction, translation, economic and political.
Business risk can affect AR. Business risks usually inherent risks
CR could be business risk
Risk Management
“The identification, analysis, assessment, control and avoidance, minimization, or
elimination of unacceptable risks. An organisation may use risk assumption, risk
avoidance, risk retention, risk transfer, or any other strategy (or combination of
strategies) in proper management of future events.”
, The process of risk management can be described as the identification, evaluation
and measurement, management and monitoring of all major risks with which the
company is faced.
BOD responsibilities
o The board must formulate a plan for RM strategy and process
o The IR should describe the efficiency of the above
o The responsibility of RM should be present from the charter and become RM
policy which is widely distributed
o Annual review of implementation and continuous monitoring
o RM should be part of new director induction
o Determine tolerance annually
o Determine risk appetite
o Constantly monitor if risk is within bounds of above
Role of AC or RC
Committee will consider RM policy and plan and risk management process
Committee consisting of minimum of 3 members majority INE and no SM
members
Meet at least 2 times a year and annual review
Annual formal RM review
Prioritise risks
Top down approach
Management Role
BOD delegate design and implementation of RM plan
Management give effect to RM strategy via implementation of systems and
processes
Management reportable to BOD for integrating RM into day to day operations
CRO should have access to and interact with BOD
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller sjg2797. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.84. You're not tied to anything after your purchase.
