Page 82 - CA Inter Bhaskar Vol 1

RISK ASSESSMENT AND INTERNAL CONTROL CA RAVI TAORI

2. Regulatory Environment
Understand the applicable financial reporting framework and industry-specific accounting
practices.
Review laws and regulations significantly affecting the entity’s operations, including taxation
and direct regulatory supervision.
Consider the impact of government policies and environmental regulations relevant to the AUDIT BHASKAR CH 03 - PART 01
entity’s business and industry.

3. Other External Factors
Analyse economic conditions, such as GDP trends, inflation, and market volatility.
Assess interest rates and availability of financing, which may influence the entity’s financial
risk and decision-making.

Chart of Nature Ownership & Governance
of Entity & Complex structure Significant complicated inter
Related Points How entity is E.g., of Holding Co's. company transactions
structured & financed
Components in multiple tax jurisdiction
Types of Investments (Including investment in special purpose entities)

RMM in earnings of products,
Its operations E.g., Sources of Earnings lines, businesses or areas
due to mgt. fraud

Key Supplier & Potential Related Parties
Customer relationships Risk of Revenue Recognition

Transaction outside normal course of Business

Contracts terms
Leasing premises Rendering Mgt.
Without services Without changed before Complex Equity
Consideration (WC) Consideration (WC) expiry & then transactions Transactions
are executed

Nature of The nature of the entity, including:
its operations;
Entity &
its ownership and governance structures;
Related Points
The types of investments that the entity is making and plans to make, including investments
in special-purpose entities; and
The way that the entity is structured and how it is financed; to enable the auditor to
understand the classes of transactions, account balances, and disclosures to be expected in
the financial statements.
Example
Business operations such as nature of revenue sources, products or services, conduct of
operations, location of production facilities, key customers and suppliers of goods and services.
Investment and investment activities such as capital investment activities and planned or
recently executed acquisitions
Financing and financing activities such as major subsidiaries, debt structure etc.
Financial reporting such as accounting principles and revenue recognition practices

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