Updated: Dec 28, 2022
Some of the benefits of the risk-based approach are summarised in the exhibit below.
Time Flexibility When Audit Work Needs to Be Performed
Because risk assessment procedures do not involve the detailed testing of transactions and balances, they can be performed well before the period end, assuming no major operational changes are anticipated.
This can help in balancing the workload of audit staff more evenly throughout the period.
It may provide the client with time to respond to identified (and communicated) weaknesses in internal control and other requests for assistance before the commencement of period-end audit fieldwork.
However, where interim financial information is not readily available, the analytical risk assessment procedures may have to be performed at a later date.
Audit Team’s Effort Focused on Key Areas
By understanding where the risks of material misstatement can occur in financial statements, the auditor can direct the audit team’s effort toward high-risk areas and perhaps reduce work in lower-risk areas.
This will also help to ensure that audit staff resources are used effectively.
Audit Procedures Focused on Specific Risks
Further audit procedures are designed to respond to assessed risks.
Consequently, tests of details that only address risks in general terms may be significantly reduced or even eliminated.
Understanding of Internal Control
The required understanding of internal control enables the auditor to make informed decisions on whether to test the operating effectiveness of internal control.
Tests of controls (for which some controls may only require testing every three years) will often result in much less work being required than performing extensive tests of details.
Timely Communication of Matters of Interest to Management
The improved understanding of internal control may enable the auditor to identify weaknesses in internal control (such as in the control environment and general IT controls) that were not previously recognised.
Communicating these weaknesses to management on a timely basis will enable them to take appropriate action, which is to their benefit.
This may also save time in performing the audit.
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