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Practical Audit 8 Risk Assessment Procedures

Today I will talk about Risk Assessment Procedures, which is a very important step in audit work after understanding the entity and before preparing the audit plan. Risk assessment procedures mean identifying where the financial statements may be wrong due to error or fraud. In simple words, we try to find what can go wrong and where. This step is important because all audit testing is based on the risks we identify. If we miss key risks, the audit plan will also be weak. As trainees, we perform risk assessment mainly in three ways. First is inquiries. We talk to management and key staff such as the managing director, finance head, accounts team, and operations staff. We ask about business risks, accounting changes, internal control issues, and any unusual matters during the year. Second is analytical procedures. We analyze numbers from the last few years. We compare revenue, profit, inventory, receivables, and cash balances. Large or unexpected changes may indicate risk and need further audit attention. Third is observation and inspection. We observe processes like sales, inventory movement, and payment approval. We check documents to see whether procedures are actually followed in practice. Another important part of risk assessment is fraud brainstorming. The audit team discusses how fraud could happen and whether existing controls can prevent it. This helps us identify fraud risks early. After completing these steps, we prepare a risk register. The risk register lists all identified risks and explains how the audit team will respond to each risk. To conclude, risk assessment procedures help us focus on the most important areas of the audit. For a CA trainee, this step improves professional judgment and helps build a strong audit plan. Thank you.