Auditor's Risk Assessment Dashboard
Understanding the Entity and Its Environment
Core Risk Assessment Procedures
Auditors perform these key procedures to identify and assess the risks of material misstatement. Click on each card to learn more about its purpose.
Inquiries
Asking questions of management, the audit committee, internal auditors, and others.
Analytical Procedures
Studying plausible relationships in financial and non-financial data to spot unusual trends.
Team Discussion
Brainstorming with the engagement team about where the financial statements might be vulnerable.
Understanding the Entity's Environment
A deep understanding of the entity's world is crucial. This includes internal factors like its business model and external factors like industry trends and regulations. Select a category to explore.
Nature of the Entity
This involves understanding the company's core. An auditor considers:
- Business Model: How does the company create, deliver, and capture value?
- Organizational Structure: Who reports to whom? Is it centralized or decentralized?
- Ownership and Governance: Who are the significant shareholders? How is the company overseen?
- Objectives & Strategies: What are the company's goals and how does it plan to achieve them? This can reveal business risks (e.g., overly aggressive growth strategies).
Industry Factors
Every industry has unique risks. An auditor considers:
- Market and Competition: Is it a highly competitive market with pressure on prices?
- Cyclical or Seasonal Activity: Does demand fluctuate predictably during the year?
- Product Technology: Is the industry subject to rapid technological obsolescence?
- Energy Supply and Cost: How volatile are key input costs?
Regulatory Factors
Laws and regulations create compliance risks. An auditor considers:
- Accounting Principles: Are there industry-specific accounting rules?
- Legal and Political Environment: How stable is the political landscape?
- Taxation: What are the key corporate tax laws affecting the entity?
- Environmental Requirements: Are there significant costs related to environmental protection?
IT Environment
Technology is integral to modern business. An auditor considers:
- IT Applications: What software (e.g., ERP system) is used for financial reporting?
- IT Infrastructure: How are servers, networks, and data managed? Is it on-premise or cloud-based?
- Risks from IT: What are the risks of unauthorized access, data loss, or system failure?
- General IT Controls: What controls are in place to mitigate these IT risks?
Economic Climate & Business Cycles
The broader economy significantly impacts a company's performance. Auditors use economic indicators to understand the current phase of the business cycle and anticipate potential pressures on the company. Click the buttons to highlight different phases and see the relevant indicators.
