Syllabus A2e)

Assess the organisation’s exposure to business and financial risk.

The risk that the business won't meet its

objectives

The objective is normally profit maximisation

So we are looking for problems which may impact on the business

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To look for Risks..

You could use PESTEL

Business risk identification is literally putting yourself in the shoes of the

management..

 Political risks
e.g. The current government may be unstable and if there is a change of
government, the new government may impose restrictions. 

The Company will need to assess the likelihood of such restrictions.

 Economic risks
 Social and taste changes
 Technological changes
 Environmental issues
 Legal issues
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 Financial Statement Risk
Simply the risk that the FS are materially misstated (before any audit
procedures)

The risk comes from potential errors or deliberate misstatements

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Business v Financial Risk

 Business risks will affect the FS if not addressed by management

 Business risks can lead to errors on specific areas of the FS (eg.
Technological change leading to obsolete stock)
 Business risk can have a more general effect on FS (eg. Poor controls
leading to errors)
 Business risks can lead to going concern problems. This too would be a
FS risk (wrong basis of accounting)