The document gives a clear and deep explanation of audit risks. The types and nature of the audit risks are explained in this document. Further, the document contains an internal control system used in managing the risks discussed in the document.
,What is Enterprise Risk
Management
• A structured, consistent and continuous process across the whole
organization for identifying, assessing, deciding on responses to and
reporting on opportunities and threats that affect the achievement
of its objectives
• process effected by an entity's board of directors, management and
other personnel, applied in strategy setting and across the
enterprise, designed to identify potential events that may affect the
entity, and manage risks to within its risk appetite, to provide
reasonable assurance regarding the achievement of entity objectives
• An effective ERM process within an organization is designed to provide
assurance that risks are identified, understood, and addressed
,Elements of Enterprise Risk
Management (ERM)
1. Risk management environment: management culture and
attitude towards risk
2. Event identification: of events that may affect
organization's ability to implement strategies or achieve
objectives
3. Risk assessment: to determine response
4. Risk Response
5. Control activities: policies and procedures designed to
reduce risks and to assure management's directives and
strategies are implemented
6. Information and communication
7. Monitoring
3
, Nature of Risk
Risk is a key issue in an audit, and the most common
approach to audits incorporates a recognition of those risks
in the approach taken
There are four critical components of risk that affect the
audit approach and audit outcome
• Engagement risk - comes with association with a specific client
• Financial reporting risk - those that relate directly to the recording
transactions and the presentation of the financial statements
• Enterprise/business risk - those that affect the operations and
potential outcomes organization activities
• Audit risk - risk an auditor may provide an unqualified opinion on
financial statements that are materially misstated
Each of these components can be managed
The effectiveness of risk management processes will
determine whether the company continues to exist
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