Acca aaa s21 Notes

September 2021 to June 2022 exams
Watch free ACCA AAA lectures 
56

---

Only on 
OpenTuition
you can find: Free ACCA notes 
•
Free ACCA lectures 
•
Free ACCA tests 
•
Free ACCA tutor support 
•
The largest ACCA community
Chapter 11
RISK
1. Types of risk
The AAA exam will include a 50-mark case study question, set at the planning stage of an audit. 
Typically, you will be required to evaluate at least one of the following types of risks for a given 
assignment:
๏
Business risks
๏
Audit risks
๏
Risks of material misstatement ('ROMM').
It is essential that you can distinguish between these terms.
Business risks result from significant conditions, events, circumstances, actions or inactions that could 
adversely affect the entity's ability to achieve its objectives and execute its strategies. 
There are four main categories of business risk:
๏
Strategic risk 
๏
Financial risk
๏
Operational risk
๏
Compliance risk
Competition is a common source of strategic risk for businesses planning to expand into new 
products or markets. Financial risks could arise because of high borrowings and a rise in interest rates. 
This will put the business under severe pressure and could increase the risk of material misstatement, 
perhaps with regards to going concern problems. Operational risks arise from day-to-day business 
activities. For example, if the products are made incorrectly then there might be warranty claims and a 
loss of reputation. Compliance risks arise from a failure to comply with regulations. This can mean that 
the business has large penalties or fines to pay or it may result in the loss of an operating licence, so it 
can no longer trade.
The auditor does not have a responsibility to identify or assess all business risks, but an understanding 
of business risks that may result in ROMM is essential (ISA 315).