Risk has been identified as a natural part of business activities. However, risks that are not controlled and addressed can jeopardize the operations of companies. The methods by which an organisation manages those risks affects its financial viability and the auditors approach to auditing it. The auditor needs to understand (a) the risks that affects the operations of the client and (b) how well management identifies and deals with those risks. Hence, the auditor will identify the key business risks, evaluate their possible impact on the financial statements and plan the approach to the audit around the key business risks that have been identified.

Required

a) Explain how the existence or non-existence of a good risk management process by an organisation affects the planning of an audit engagement.