A Risk Based Approach to Auditing Financial Statements

Author:Brian PINE, ACCA

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Keywords:financial statement, substantive procedure, system based approach, risk-based approach, financial risk, compliance risk, operational risk

Abstract:
This is the second article of the series on risk-based auditing and audit evidence.\r\nIn this second article, I explain the business risk-based approach in more detail, and explain the activities that are undertaken as part of audit planning when this approach is adopted.\r\nThis article explains each of these planning activities in the context of an audit assignment where a business risk-based approach to the audit has been adopted. To help explain and illustrate the practical application of these activities, a modified version of a real scenario will be used.\r\nTypically, determining an audit strategy and the planning of an audit are (more often than not) dynamic processes, and auditors should be aware that the audit procedures which form part of the initial strategy or plan may not be carried out, or, conversely, may be extended as a consequence of findings from initial tests.\r\nI hope that, by careful study of this article, the auditors will gain a better understanding of the various aspects of audit planning when applied with a business risk-based approach to an audit, and will therefore be in a better position to apply these principles.\r\n

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