What best describes the concept of risk assessment that currently underpins the auditing standards?
A) The risk that the financial report is misstated as a result of weaknesses in internal control.
B) The risk that the financial report is misstated because of fraud.
C) Developing client acceptance and continuance practices that minimise the likelihood of lawsuits against the auditor.
D) Whether management has systems in place to evaluate and effectively manage the entity's business risks.

Question

Quizplus · Accepted Answer

The concept of risk assessment that currently underpins the auditing standards is focused on evaluating whether management has systems in place to evaluate and effectively manage the entity's business risks. This approach involves the auditor identifying and assessing the risk of material misstatement in the financial statements, and then designing and performing audit procedures that address those risks. The goal is to obtain sufficient appropriate evidence to provide reasonable assurance that the financial statements are free from material misstatement. Option A is too narrow, as it only addresses one aspect of risk assessment. Option B is also too narrow, as it assumes that fraud is the only risk that can lead to a misstatement in the financial statements. Option C is not relevant to the concept of risk assessment, as it is focused on minimizing the auditor's legal exposure, rather than identifying and assessing risks in the audit engagement.

What Best Describes the Concept of Risk Assessment That Currently