Risk assessment - part 1

In this lesson

1. 0:00 Risk-based approach to audit planning
2. 1:05 Identifying and responding to audit risks
3. 2:11 Practical example: Inventory obsolescence risk
4. 4:00 Understanding your client and its context
5. 5:00 Internal factors affecting audit risk
6. 7:01 External factors and regulatory environment
7. 8:02 Types of risk: Business, audit, and financial statement
8. 9:01 Financial, operational, and compliance risks explained
9. 12:19 Case study: Evaluating business risks in practice

About this lesson

In this first part, you'll explore the risk-based approach to auditing, understanding how to evaluate your client's business model, industry environment, and internal controls to pinpoint where material misstatements might occur. You'll discover the three categories of business risk—financial, operational, and compliance—and see how each threatens your client's ability to meet key objectives. By the end, you'll understand why thorough client knowledge directly shapes your audit strategy and helps you design sufficient and appropriate audit evidence to support your opinion. This video walks you through the core components of risk assessment: understanding the client's operations and structure, identifying potential risks of material misstatement, and designing your audit response. You'll work through a practical example involving a luxury holiday resort chain, learning how to evaluate threats like economic sensitivity, variable-rate financing, and operational disruptions. The session emphasises that audit risk—the risk of expressing an inappropriate opinion—can only be managed if you first understand the business risks your client faces. This knowledge directly determines where you'll focus your audit work, how much resource you'll need, and ultimately, whether you'll gather the evidence required to justify your audit opinion.

Duration: 17m