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inherent risk at the financial statement level relates to a business and operating r 738409

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

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

● Operations exposed to volatile markets, such as futures trading

● Operations that are subject to a high degree of complex regulation

● Going concern and liquidity issues, including loss of significant customers or constraints on the availability of capital or credit

● Offering new products or moving into new lines of business

● Changes in the organization such as acquisitions or reorganizations

● Entities or business segments likely to be sold

● The existence of complex alliances and joint ventures

● Use of off balance sheet financing, special purpose entities, and other complex financing arrangements

● Significant transactions with related parties

● Lack of personnel with appropriate accounting and financial reporting skills

● Changes in key personnel, including departure of key executives

● Deficiencies in internal control, especially those not addressed by management

● Changes in the Information Technology (IT) system or environment and inconsistencies between the entity’s IT strategy and its business strategies

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

● Past misstatements, history of errors, or significant adjustments at period end

● Significant amount of nonroutine or nonsystematic transactions, including intercompany transactions and large revenue transactions at period end

● Transactions that are recorded based on management’s intent, such as debt refinancing, assets to be sold and classification of marketable securities

● Accounting measurements that involve complex processes

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

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