Apple Inc.

Week 1: Case 2.2 Apple Inc.

Q) Professional auditing standards provide guidance on the auditor’s consideration of an entity’s business risks. What is the auditor’s objective for understanding an entity’s business risks? Why does an auditor not have responsibility to identify or assess all business risks? Provide some examples of business risks associated with an entity that an auditor should consider when performing an audit?

 To provide a basis for designing and performing further audit procedures, the auditor should identify and assess the risks of material misstatement. The auditor must have an understanding of the entity and its business environment. A good understanding of material misstatement at the financial statements level and the relevant assertion level for classes of transactions, accounts balances, and disclosures helps to design the nature, timing, and extent of further audit procedures to perform.

 The auditor does not have responsibility to identify or assess all business risks as not all business risks give rise to risk of material misstatement. The auditor only needs to consider those business risks that could result in a material misstatement in financial statement, account balances and disclosures.

 Examples of business risk associated with an entity that an auditor should consider when performing audit are as follows

1. High degree of complex regulation.

2. Marginally achieving explicitly stated strategic objectives.

3. Changes in supply chain.

4. Expanding into new locations.

5. Operations in regions those are economically unstable.

6. Changes in the industry in which the entity operates.

7. Constraints