ACCA AA Syllabus B. Planning And Risk Assessment - Risk Assessment Procedures - Notes ^{2 / 5}

This involves recognising the nature of the company and management, interviewing employees, performing analytical procedures, observing employees at work, and inspecting company records.

After you run through all applicable risk-assessment procedures, you use the results to figure out how high the chance is that your client has material financial-statement mistakes.

Not every mistake is important.

Let's look at these in more detail now..

• The nature of the company

  Here are some crucial questions to ask the client during your risk assessment procedures..

  • What’s the company’s market overview?

    For example, if the client is a bank, in how many countries does it operate?

  • Who (if anyone) regulates the client?

    Many businesses don’t have an outside regulatory agency, but any publicly traded company will have stock exchange rules to follow

  • What’s the company’s business strategy?

    Most business strategies are to maximise shareholder value by increasing profitability and serving the community in which they’re located. 

    The answer may lead you to more probing follow-up questions.

• The quality of company management

  Look for things like..

  • Do they enforce procedures - check their attitude in interviews

  • Is there high employment turnover

  • Are the top management experienced

  • Any accounting adjustments needed in prior years

• Ask Employees for information

  • Talk with individuals holding different levels of authority, from low-level clerks all the way up to the board of directors.