Page 92 - CA Final PARAM Digital Book.

QNO Risk Based Audit Old Course – (M08R, M15R, M16E, N16E, SM17, M17E, N16M,
162.000 TITANIUM CNO— MRI.180 N18M, M19M, M19R, N20R, N20M, N20E, M22R)
What are the main phases in the conduct of Risk Based Audit?
OR
What do you mean by risk-based audit? What are the general steps in the conduct of risk-based audit?
OR

Audit should be risk-based or focused on areas of greatest risk to the S achievement of the audited entity’s
objectives. Risk based Audit (RBA) is an approach to audit that analyses 'audit risks, sets materiality
thresholds based on audit risk analysis and develops audit programmes that allocate a larger portion of
audit resources to high-risk areas. What are the general steps for conducting Risk Based Audit?
Answer ➢ General Steps in The Conduct of Risk Based Audit (RBA)
Concept of RBA

• Auditor’s Objective
The auditor’s objective in a risk-based audit is to obtain reasonable assurance that no
material misstatements whether caused by fraud or errors exist in the financial
statements.
• 3 Key Steps
This involves the following three key steps:
o Assessing the risks of material misstatement in the financial statements
o Designing and performing further audit procedures that respond to assessed
risks and reduce the risks of material misstatements in the financial
statements to an acceptably low level; and
o Issuing an appropriate audit report based on the audit findings.
• 3 Phases
The risk-based audit process is presented in three distinct phases:
o Risk assessment.
o Risk response; and
o Reporting.

Risk Assessment
The risk assessment phase of the audit involves the following steps:
• Acceptance or Continuance
Performing client acceptance or continuance procedures.
• Planning
Planning the overall engagement.
• Understanding Business
Performing risk assessment procedures to understand the business and identify
inherent and control risks.
• Relevant Controls
Identifying relevant internal control procedures and assessing their design and
implementation (those controls that would prevent material misstatements from
occurring or detect and correct misstatements after they have occurred).
• Financial Statement Level Vs Assertion Level
Assessing the risks of material misstatement in the financial statements.
Making an informed assessment of the risks of material misstatement at the financial
statement level and at the assertion level.
• Significant Risk
Identifying the significant risks that require special audit consideration and those risks
for which substantive procedures alone are not sufficient.
• Communication
Communicating any material weaknesses in the design and implementation of
internal control to management and those charged with governance; and

Risk Response
This phase of the audit is to design and perform further audit procedures that respond to the
assessed risks of material misstatement and will provide the evidence necessary to support the

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