Business Risk vs Audit Risk

Audit Risk Assessment can be done by this Audit Risk Model. This model consists of 3 types of risks i.e., inherent risk, control risk and detection risk. Eventually, audit risk is a product of these 3 types of risks (Griffiths, 2012).

Enterprise Risk Management (ERM) is a series of processes used to identify risk, implement strategies to address risk, and monitor impact on the organization. Indeed, an effective ERM will consist of a corporate profile, which is a record of key risks that would hinder the organization in achieving their key objectives (Fraser & Simkins, 2010). Ideally, the risk profile is created as a tool to communicate with the Board of Directors, but may be used as a means of communication with all levels of management (Bethel, 2016). Typically, there are variations of the risk profile based upon the level of management, such as duration, types of risk, and purpose (Fraser & Simkins, 2010).

Audit risk is the risk that the auditor gives the wrong opinion – this can either be stating errors when there are none or when there are errors stating that there are none. This risk cannot be eliminated as auditors can only provide a reasonable assurance and not absolute, but instead this can only be managed and reduced to a minimum.

Enterprise risk management is a technique used by organizations to manage risks that have the potential to affect the company, both positively and negatively, altering

#3. Inherent Risk Factors; audit planning decisions. Businesses that face extreme competition are susceptible to many inherent risk factors – the measurement of the auditor’s assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control. Complex valuation issues and related party transactions are two such factors that would affect audit planning decisions. Valuation issues may lead the audit team to request more evidence, if they choose to accept the audit at all. Risks such as inventory turnover leading to potential misstatements of inventory, costs of goods sold, or obsolescence of inventory may influence the audit firm’s decision to hire outside specialists to assist in the audit. Another inherent risk factor, client business risk (competitive

Risk management goals and objectives should be consistent with and supportive of the enterprise’s business objectives and strategies. Therefore, the organization’s business model provides an important context for risk management.

Risk refers to a likelihood, probability, a chance that a loss may occur in a given organization. Most of the times, there is a high risk when there is vulnerability. In this case, vulnerability refers to a weakness that the organization has. Risk assessment refers to the process of identification of potential hazards and proper analysis of the expected losses if those hazards occur (Homeland Security, n.d.). Risk assessment as a way of profiling risk according to impact to the organization. Some organizations have business impact analysis exercises geared towards determination of potential hazards based risk assessment approaches. Organizations’ risk differ depending on the size and the type of business they are doing. The disparity in organizations’ risk call for different adaptation of risk assessment approaches. Even with the disparities of the businesses, proper risk management not only ranks the risks according to the seriousness but also identifies the best methods to control risks in an organization.

Enterprise risk management is an approach to assist management to identify and manage uncertainties to obtain positive risk objectives. The ERM framework focuses on the development of a strategy that contains the importance of a risk and internal control

Business risk refers to the chance a business's cash flows are not enough to cover its operating expenses like cost of goods sold, rent and wages. Unlike financial risk, business risk is independent of the amount of debt a business owes (Guzman & Media, 2015). Financial risk refers to the chance a business's cash flows are not enough to pay creditors and fulfill other financial responsibilities (Guzman & Media, 2015). Financial risk is the additional business risk concentrated on common stockholders when financial leverage is used and depends on the amount of debt and preferred stock financing (Brigham & Ehrhardt, 2014).

Do better understand the analysis of audit risk let us first define what audit risk is and what its components are. Audit risk is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. This means that an auditors reports that in their opinion the financial statements are fairly presented when, in fact, they contain a significant error or fraud, and therefore are materially misstated.

According to IRM-AIRMIC-ALARM (2002), risk management actually defines every organisational strategic management; it comprises the process which identifies and treats the internal and external risks and adds sustainable value to the organisation and its stakeholders by decreasing the probability of not achieving the organisation’s overall objectives. The specific institutes suggest that risk management lies in the strategic, tactical and operational levels, and its embodiment in all tasks and roles is required; it is a consistent manner for an organisations’ operation, which leads to effective decision making, efficient allocation and protection of the organisational assets, and enrichment of the organisational

The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.

Definition: A Risk is an unwanted situation which might arise in an organization which might lead to negative impact on the desired result. Risk management plans involves the analyzing, managing and evaluating the projects risk and threats. It involves layout of the entire project i.e from the beginning during and after results of the project.

This research paper focuses on how IT audits are done and how they can help in assisting an organization in its regulatory compliance effort by identifying information security weaknesses prior to an external audit. The key players and their roles are defined, as well as organizational, results-based, point-in-time systems and extended-period audits. This leads to a natural question. In this new world of connected GRC, what is the role of internal audit compared to compliance? Where do these roles remain separate and where do they share responsibilities? How can these professionals work together to drive business value?

One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is