Page 84 - CA Inter Bhaskar Vol 1

RISK ASSESSMENT AND INTERNAL CONTROL CA RAVI TAORI

Chart of Objectives
Objectives &
Marketing Campaigns
Strategy Steady regular growth
Related Points Strategies E.g., Entering new markets
Complex strategy of
Aggressive growth
Acquiring competitors AUDIT BHASKAR CH 03 - PART 01
Loss of Financing
Related Business Risks E.g., L
Lack of personnel with expertise
Insufficient or Excessive production
I
capacity
Failure to keep up to date with new
F
technology, products, services
Excessive reliance on key supplier,
E
individual or product

Objectives & The entity's objectives and strategies, and those related business risks that may result in risks of

Strategies material misstatement.
Related Points
Example
1. Business Context
The entity operates within a framework of industry, regulatory, internal, and external factors.
To address these, management defines objectives (overall plans) and strategies (methods to
achieve objectives).

2. Nature of Business Risk
Business risk is broader than the risk of material misstatement but includes it.
It may arise due to change, complexity, or external developments and can affect the financial
statements.
However, the auditor is not responsible for identifying all business risks—only those leading to
risks of material misstatement.
3. Importance for Auditor
Understanding business risks improves the auditor’s ability to identify risks of material
misstatement.
Most business risks eventually have financial consequences, directly or indirectly impacting
financial reporting.
4. Examples of Relevant Business Risks
Industry Developments: Risk that the entity lacks skilled personnel or expertise to adapt to
changes.
New Products and Services: Risk of increased product liability or failure in market acceptance.
Business Expansion: Risk that demand estimation is inaccurate, affecting profitability or
operations.

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