While conducting the audit of Zeena Limited, CA E is trying to obtain understanding of different components of internal controls of the company.…

CA Intermediate · Auditing and Ethics · MTP · September 2024
While conducting the audit of Zeena Limited, CA E is trying to obtain understanding of different components of internal controls of the company. Such an understanding is necessary and is required to be documented in accordance with Standards on Auditing. In this context, how he shall obtain understanding of the risk assessment process of the company and how is this understanding important for the auditor?

Suggested Answer and Working Notes:

(a) CA E, the auditor of Zeena Limited, shall obtain an understanding of whether the entity has a process for: (a) Identifying business risks relevant to financial reporting objectives (b) Estimating the significance of the risks (c) Assessing the likelihood of their occurrence (d) Deciding about actions to address those risks The entity's risk assessment process forms the basis for the risks to be managed. If that process is appropriate, it would assist the auditor in identifying risks of material misstatement. Risks can arise or change due to factor such as new technology, new business models, products or activities, changes in operating environment etc. Whether the entity's risk assessment process is appropriate to the circumstances is a matter of judgment.

Topics: Risk Assessment and Internal Control

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