The risk assessment component of internal controls refers to:
A)the auditor's assessment of control risk.
B)the auditor's assessment of engagement risk.
C)the entity's identification and analysis of risks relevant to achievement of its objectives.
D)the entity's monitoring of the potential for material misstatements.

Question

Quizplus · Accepted Answer

The risk assessment component of internal controls pertains to the entity's identification and analysis of risks relevant to the accomplishment of its objectives. It includes assessing the likelihood and impact of risks to establish a basis for determining how they should be managed. This ensures that the entity can respond appropriately to changes in the business environment and avoid or mitigate potential issues. The auditor's risk assessments (choices A and B) are separate activities that are performed in connection with the audit of the company's financial statements. Monitoring of the potential for material misstatements (choice D) falls under the control activities component of internal controls.

The Risk Assessment Component of Internal Controls Refers To