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Auditing Standard No. 12

Identifying and Assessing Risks of Material Misstatement

Appendix A – Definitions

A1.      For purposes of this standard, the terms listed below are defined as follows:

A2.      Business risks – Risks that result from significant conditions, events, circumstances, actions, or inactions that could adversely affect a company's ability to achieve its objectives and execute its strategies. Business risks also might result from setting inappropriate objectives and strategies or from changes or complexity in the company's operations or management.

A3.      Company's objectives and strategies – The overall plans for the company as established by management or the board of directors. Strategies are the approaches by which management intends to achieve its objectives.

A4.      Risk assessment procedures – The procedures performed by the auditor to obtain information for identifying and assessing the risks of material misstatement in the financial statements whether due to error or fraud.

Note:  Risk assessment procedures by themselves do not provide sufficient appropriate evidence on which to base an audit opinion.

A5.      Significant risk – A risk of material misstatement that requires special audit consideration.