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Auditing - Essay Example

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Most statutory auditors conduct a risk-based assessment process, which involves studying their client’s environment, determining risks, and formulating a plan to…
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Download file to see previous pages The accountants ensure that this system has all components and that it functions efficiently. This paper will study risk-based auditing and assess the objectives and elements of internal control system while making reference to Emerald Fitness Studios.
Risk-based auditing is a review whereby the auditor concentrates on the risky areas of a business (Gray, & Manson, 2011). The auditor uses more resources to assess the risky areas more than the non-risky areas of a business. This form of auditing takes place in three stages that include: comprehending of an organization’s environment and processes, identifying risks and their impacts, and then concluding on those risks.
The first stage of risk-based auditing involves understanding the environment of a business. The environment includes the daily activities and processes that take place in the organization (Ricchiute, 2003); for example, selling is a process that takes place in an organization on a daily basis. The auditor studies this activity from when a customer orders a product to the time that client receives that good and pays for it. In the case of Emerald Fitness Studios, the auditor should spend the day understanding the activities that the accountant, technicians, instructors, and the manager undertake. This means that the auditor has to spend some evenings in the office to relate with the accountant’s duties because the accountant works at night at the back office.
The second stage of risk-based assessment involves identifying risks and their impacts to the organization’s records and going concern (Ricchiute, 2003). This is because all organizations operate in a setting that is filled with uncertainties. The statutory auditor of EFS should identify the uncertainties that the organization faces; for example, the organization faces compliance, operational, and financial uncertainties. The statutory accountant should then determine the effects of the occurrence of these risks on the ...Download file to see next pagesRead More
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