Assessing audit risk follows a sequential step that will lead auditor to arrive at proper audit assessment conclusion for better decision making for the target organization. The first of these steps is an adequate understanding of the client and its environment. While not limited to immediate working space we also talk of the atmosphere that the competitors create, the government policies and well as the demographical set up of the environment. These factors have a direct impact on the business. Secondly, the auditor should be in the position to understand the internal factors that mitigate the risk of not achieving the set objectives. The auditor should be able to analyze the controls set within the business and their direct impact on the operations of the business. The third step to undertake in the audit process is setting up a meeting with stakeholders or the audit team where you will be brainstorming on the analysis done in the above two steps. By analyzing every risk and exhaustively discussing it, the team should arrive at resolutions that will be implemented for business prosperity. The final step would be concluding all the work that has been done.
Analytical procedures are significant as it helps in evaluating financial information by pointing out the relationship between the economic data and the non-financial data which will translate to what is expected against what is achieved. Ratio Analysis is used by the auditor to find the comparison between the current year rations and previous year rations, for example, dividing current assets by current liabilities which is compared with that of past years. Secondly, using the diagnostic approach Trend Analysis is used best to calculate and compare current year balances with that of previous years and analyzing the deviations. The bad debts, for example, should be checked concerning sales of current and prior years.
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