Reference no: EM131255412

Inherent risk at the financial statement level relates to (a) business and operating-related risks and (b) financial reporting risks. The Professional Judgment in Context feature “Risks Associated with Financial Statement Misstatements” summarizes various risks from ISA 315; that list is reproduced here.

For each risk factor, categorize it as indicating (a) business and operating risk, (b) financial reporting risk, or (c) other (if other, describe).

1. Operations in regions that are economically unstable, such as countries with significant currency devaluation or highly inflationary economies

2. Operations exposed to volatile markets, such as futures trading

3. Operations that are subject to a high degree of complex regulation

4. Going concern and liquidity issues, including loss of signifi- cant customers or constraints on the availability of capital or credit

5. Offering new products or moving into new lines of business

6. Changes in the organization such as acquisitions or reorganizations

7. Entities or business segments likely to be sold

8. The existence of complex alliances and joint ventures

9. Use of off-balance sheet financing, special-purpose entities, and other complex financing arrangements

10. Significant transactions with related parties

11. Lack of personnel with appropriate accounting and financial reporting skills

12. Changes in key personnel, including departure of key executives

13. Deficiencies in internal control, especially those not addressed by management

14. Changes in the IT system or environment and inconsistencies between the entity’s IT strategy and its business strategies

15. Inquiries into the entity’s operations or financial results by regulatory bodies

16. Past misstatements, history of errors, or significant adjust- ments at period end

17. Significant amount of nonroutine or nonsystematic transac- tions, including intercompany transactions and large revenue transactions at period end

18. Transactions that are recorded based on management’s intent, such as debt refinancing, assets to be sold, and classi- fication of marketable securities

19. Accounting measurements that involve complex processes

20. Pending litigation and contingent liabilities, such as sales warranties, financial guarantees, and environmental remediation.