Business Risk Approach

AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

Question

What is the main justification for the use of a business risk approach to an audit of large companies?

A A systems-based approach and a substantive testing approach are unlikely to detect material misstatements in the financial statements of large companies.

B This approach forces the auditors to understand the client’s business in depth.

C It is more effective than other approaches to audit in detecting deficiencies in internal control.

D Major audit problems in large companies are more likely to result from business-related problems than from deficiencies in internal control.

Answer

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Tags: Business Risk Approach, Financial Statements, Internal controls, Large Companies
Level: Level 3

Topic: The audit approach

AAA – L3 – SA – Q1.5 – Business Risk Approach

Disadvantage of business risk audit approach.

Question

One of the disadvantages with a business risk approach to the audit is:

A A perceived conflict with auditor independence

B Increase in knowledge of the client’s business

C A reduced focus on processing errors

D More senior staff are involved

Answer

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Tags: Audit Strategy, Auditor Independence, Business Risk Approach, ICAG
Level: Level 3

Topic: The audit approach

AAA – L3 – Q25a – Audit Approaches

Outline when a substantive audit approach is appropriate versus a combined systems-based and substantive approach.

Question

(a) Outline the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of a systems-based approach and substantive procedures should be used. (b) Explain what is meant by the business risk approach to an audit and describe advantages and limitations of this approach.

Answer

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Tags: Audit Efficiency, Audit Strategy, Auditor Independence, Business Risk Approach, Financial Statement Impact
Level: Level 3

Topic: Audit Approaches

Tag (SQ): Business Risk Approach

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AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

AAA – L3 – SA – Q1.5 – Business Risk Approach

Disadvantage of business risk audit approach.

AAA – L3 – Q25a – Audit Approaches

Outline when a substantive audit approach is appropriate versus a combined systems-based and substantive approach.

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Tag (SQ): Business Risk Approach

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AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

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AAA – L3 – SA – Q1.5 – Business Risk Approach

Disadvantage of business risk audit approach.

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AAA – L3 – Q25a – Audit Approaches

Outline when a substantive audit approach is appropriate versus a combined systems-based and substantive approach.

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