Question

Client Business Risk 

The risk that the client will fail to achieve its obiectives. 

Auditor's primary concern is:

 The risk of material misstatements in the financial statements due to client business risk. 

Management is the primary source for identifying client business risks. 

Explain and provide examples

Answer 1

Auditors primary concern is " The risk of material misstatements in the financial statements due to clients business risk."

In such a situation, Management is the primary source for identifying client business risks because management is the ultimate responsible persons in the concern for day to day affairs of the business.

Examples:

Risks of material misstatement can arise from a variety of sources, including external factors, such as conditions in the company's industry and environment, and company-specific factors, such as the nature of the company, its activities, and internal control over financial reporting.

For example, external or company-specific factors can affect the judgments involved in determining accounting estimates or create pressures to manipulate the financial statements to achieve certain financial targets.

Also, risks of material misstatement may relate to, e.g., personnel who lack the necessary financial reporting competencies, information systems that fail to accurately capture business transactions, or financial reporting processes that are not adequately aligned with the requirements in the applicable financial reporting framework.