Can you identify Significant Risks for an audit client?

Identifying significant risks is the foundation of the audit - get this wrong and you might miss something important!
I share my 3 tips to learn how to identify the significant risks and not get confused with business risks.
#Auditing #SignificantRisks #InherentRisks
For the exercise - here are the financial statements for each
Apple - investor.apple.com/investor-r...
AirBnB doesn't have public financials - but here is some info - craft.co/airbnb/metrics
InnisFree - owned by Amore Pacific -www.apgroup.com/int/en/misc/n...
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[@thegoal745]

Significant risks on Apple 1. USA company operating in China, political issues between the 2 countries may affect the going concern. 2. its a technological company , and rapid changes in technology and innovations affect the value of assets ( inventory) - hence significant risk on impairment of assets 3. Being a multinational company dealing with various currencies there is risk on application of IAS 21. 4. Revenue recognition - since they have online sales , sales returns, also revenue maybe overstated by sales reps trying to hit promotion targets

[@amandalovestoaudit]

Excellent work Raymond! Don’t forget that they conduct a lot of R&D - accounting for that is tricky as well 😊

[@neomphahlele6922]

Hi Amanda. I'm from South Africa. Your videos helped me a lot in passing my Auditing Final. I just found out I passed a few days ago. Thank you so much

[@amandalovestoaudit]

That is fantastic news Neo!! Congratulations 🎉🎉

[@markusduvenage7468]

Same here! Good luck for ITC!

[@neomphahlele6922]

@@markusduvenage7468 thank you

[@sahillarya06]

Me too 😊

[@annaanna8927]

I have already seen some of your videos, and I find them quite valuable. I am very appreciative of your work and explanations. And now, when I started searching for other videos on this topic, I wasn't satisfied until I found yours. You are doing such a wonderful job that I don't want to watch any clips on an audit made by someone else.

[@amandalovestoaudit]

Awww that is so lovely of you to say ❤️❤️

[@jeffm7487]

I have the highest degree of respect and appreciation for you. Thank you! (from 🇨🇦)

[@umapradhan1849]

Thank you so much Amanda... You are great!💖

[@MazharAli-iy2oh]

Hello amanda 👋 They way you bifurcat between audit risk and business risk is superb and very much understandable. Thankyou

[@ayansijiayangbemi3864]

It is the way you break things down for ease understanding … thanks Amanda

[@ibrahimel-harris582]

Hey Amanda. You honestly make the best videos that are so understandable. Don't STOPPPP!!!! Actually making me enjoy my ASA classes. The whole UTS Business School should learn of you.

[@amandalovestoaudit]

Thank you!

[@robynemilie4906]

Hi Amanda! Your videos are very helpful - I'm preparing for ACCA's AAA (P7) exam with no working experience in audit so it's been useful to get your tips and tricks instead of just reading my study kit.

[@anwarkhan1936]

Best ever channel for someone work in the Audit Industry....Please do some more video's in auditing different accounts like you did for payables and revenue

[@cherries199]

Hi Amanda, I want you to know that you have such a unique and amazing style of teaching and delivering concepts that is so simple and easy to understand!! So impressive!! I became your instant fan!! Huge respect for you, teacher!! 😀 Learnt from you and still learning! Wish I can meet you some day!!

[@amandalovestoaudit]

Thank you so much Amna 🙏❤️

[@manvishjugessur7709]

Your videos makes feel a love for audit which i feared to tackle before. Thank you and keep it rolling

[@amandalovestoaudit]

That is awesome to hear!

[@AsimKhan-sv9iz]

Amazing videos, these are the best to update knowledge..

[@ashebirdemissie4916]

For me you aren't only love auditing ,your explanations of all matters of audit also lovely !!!!

[@amandalovestoaudit]

Thank you 🙏 ☺️

[@marjalegre1584]

Hi Amanda, I love your videos and teaching styles, it helps me a lot. Thank you.

[@amandalovestoaudit]

You are welcome Marj 😊

[@BambiOnIce19]

Brilliant videos. You have no idea how much this is helping me prepare for my CISA exam. It’s on 5th May. Let’s see if I pass …

[@DreamFirms]

Thanks for sharing your knowledge Amanda!

[@amandalovestoaudit]

Any time!

[@nanditasaha3658]

Thank you so much for your wonderful presentation.

[@amandalovestoaudit]

You’re very welcome - thanks for watching 😊

[@kelsiemckay9620]

Hi, love the new style of videos. I've been a fan for many years. In this video you promise a follow up with a response to risks of the three companies - apple, airbnb and Innis. However I can't find the follow up video on your channel. Would you be so kind to share the link? Thanks for the wonderful educational videos!

[@cagauravparmar977]

Amanda.. Its Gaurav from India. I love your lectures. They are informational and easy to understand. In fact I am Chartered Accountant and I love Audit too much. I am also pursuing ACCA and your lectures are too much useful in my study. THANK YOU.

[@amandalovestoaudit]

Best of luck with your ACCA studies! I'm glad to hear that my resources are useful :) Don't forget to check out my study guide resource as well - amandalovestoaudit.com/learning-resources/audit-study-guide/

[@tsamaraxv]

Thanks you so much for your video...

[@nihadmohammed2281]

significance risk on AirBnB: 1)Revenue recognition: the company earns by the service fee from hosts and guests when they booked, with different rates applicable for both, the significant risk could be using the wrong commission or manipulating the rates which could potentially misstate the revenue in the financial statement 2)The company based in the US and also serves worldwide, the possibilities of not treating the effect of changes in foreign rates (IAS 21) in the right way, would again impact the revenue which is a significant risk to consider 3)Due to the business nature of lodging, the COVID 19 might have impacted in its business with outsiders as travelers are restricting in traveling and eventually affecting its going concern (I'm really curious to know whether above are right or wrong and I'm also waiting for your new video on the above three companies significance risk and analysis from your perspective ) Thank You, Maam Love from India :)

[@amandalovestoaudit]

Hi Nihad - this is a good list! Some feedback 1. Definitely issues with rates and commissions - but also - when is the revenue earned? When the booking is made or when the guest actually stays? 2. Absolutely! 3. Definitely - what expenses do they have to cover? Do they have sufficient cash?

[@Amir-dz1wy]

wow, Amanda, you look absolutely beautiful and amazing. love your teaching style.

[@amandalovestoaudit]

Thank you Amir 😊

[@f1appex936]

Great video!

[@dilshanmad]

Thanks from Sri Lanka 🇱🇰

[@CPAHallTalk]

Nice video, Amanda. Thanks.

[@amandalovestoaudit]

You're welcome!

[@andytang1377]

Currently preparing for ACCA so thank you for your content 👍

[@amandalovestoaudit]

Good luck in your exams Andy! If you haven’t seen it already - I’ve also organised my videos in a study guide amandalovestoaudit.com/learning-resources/audit-study-guide/

[@voicechasakarasakramente3504]

Hi Andy.. did u pass f8 acca

[@s4sumeetmishra]

I would take Airbnb and then will post here the risk thereto. Thanks #amanda

[@gyanendrapoudel5494]

Did you make a video on identifying risk on three companies Apple, AirBNB and another company ? Please provide me with link if you did. Thank you ! :)

[@hugosmith6776]

Apple: 1) Global revenue calculations 2) Inventory - specifically returns 3) 3rd party sales and allowances for doubtful accounts

[@hugosmith6776]

I MISSED YOUR PRESENSE IN MY COURSE! …..caught on the day of the final. course is done, YET HERE I AM! you bring education to another level. ty ma'am.

[@florinp3428]

Great info!

[@amandalovestoaudit]

Thank you Florin 😊

[@shukrisalman4569]

Hi Amanda.superb videos - both lectures and quality..Could u pls advise on how u come up wit this kind of video.I mean the background and points appearing on the screen. Thanks!

[@amandalovestoaudit]

Thanks Shukri! I use Premiere Pro from Adobe for all of my video editing. But similar things can be done in Open Shot and iMovie ☺️

[@gajendrakc813]

Thank you !

[@amandalovestoaudit]

Any time!

[@bubbleblower9993]

Significant risks on Innisfree: 1. Since innisfree sells worldwide, they may face issues during the translation between foreign currencies, thus affecting their sales, revenue, selling expenses - accuracy 2. A beauty brand like them would conduct many R&D to improve their products, and the valuation of R&D activities could be tricky too, thus affecting their R&D expense and could lead to their net income/loss - accuracy, valuation allocation 3. The procurement of natural resources for their products should be valued well, from the value to the depletion. The costs of obtaining the resources could be high too and it could be potentially overstated to boost the cost, thus could affect the assets, raw materials - existence, accuracy, valuation allocation

[@amandalovestoaudit]

Great work! There might also be cost accounting issues because it contains many ingredients and potentially complicated overhead allocation.

[@yasirnisar57]

Like done. ma'am subscribed already.

[@amandalovestoaudit]

Thank you! 🙏🙏🙏

[@joshhope7037]

inherent risk exist irrelevant to whether there is the control exist or not. control risk is the risk that internal control did not stop the risk or did not control the risk. The detection risk is auditor did not find out the risk.

[@BambiOnIce19]

Very good explanation. CISA is big on those controls. Domain 3 comes to mind…

[@jnkvngz2965]

I like the comment about competition not being a good indicator for inherent risk. But what if competition is so significant that it has an impact on going concern for the client?

[@thejayeshrajani309]

If possible, Please make a Short video on Assertions in Auditing Thank You🌻

[@amandalovestoaudit]

Hi Jayesh - this is on my list for January 😊

[@thejayeshrajani309]

@@amandalovestoaudit Hi Amanda, Yes I watched it, I am CA student pursuing in India, I love your videos and teaching style, Our institute is also founder member of IFAC and targeting to meet with International Standards to overcome the problem of consolidation of financial statements of various nations of the same business entity. Benefiting we can see the videos on auditing from all over the world since it is getting uniformity. Very helpful to watch your videos on the subject Thank you😊💐

[@chocymachado]

Hello Amanda.. you mention in this video "competition" if you cant link it to an assertion then its not a risk.so can a risk only be accounts? competition seems like a risk but under what asseertion could you link it to it doesnt make sense for competition to be a transaction or balance account. but if a new company comes into the industry and completely takes ove such as apple, sumsung or facebook was a clear risk to myspace. if competition can be an inherent risk what if the competition is from withing the parent company as seen in motor sports a team will create another team under the same sponsor or VW with so many other car manufacturers. lastly when assessing inherent risk to say revenue is it purely consolidated figure?

[@amandalovestoaudit]

Hi chocymachado - I'm so sorry that I didn't respond to your question earlier. Competition is such a tricky risk - it is definitely a business risk - but it only becomes a business risk where it induces behaviour that increases the risk of an error/misstatement in the accounting. Eg - in your motor sport example, drivers or team managers may have specific incentives to win a race or championship, even though a rival team is owned by the same parent company. Those incentives may be financial (eg bonus), or improved reputation (which may help the driver the next time they need to negotiate their pay). Does this help? Make sense?

[@shekharthapaliya8369]

Thank you for the video .. follower from Nepal

[@amandalovestoaudit]

You’re welcome Shekhar!

[@darrenrogers7386]

Are your videos pertaining to IT audit??

[@chocymachado]

Hello Amanda, did you follow up this video with your analysis of the three companies you mentioned at the end of this video?

[@amandalovestoaudit]

I didn't - that is a great point and something for me to remember to do :)

[@saleemm3972]

Really love the way you simplify and clarify everything. I am a junior auditor (very new to the field) and your videos really helped. I have 2 questions, (1) Does every control exist to prevent an inherent risk, or can there be a control which exist simply to ensure that a financial statement assertion is achieved, without specifically matching an inherent risk? I am asking because, as far as i know, control risk is the risk that a misstatement goes undetected by the internal control system and the misstatement is caused by an inherent risk in the first place. (2) The second question is, can a control risk be deemed as a significant risks. I feel like I am starting to grasp a lot of auditing concepts but still there are gaps withing my understanding which makes it difficult to fully appreciate the work I am doing.

[@amandalovestoaudit]

Hi Saleem Controls are there to ensure staff follow a business process - some might be to comply with government regulations, others to minimise business risk or inherent risk, others to secure financial reporting. According to the definition of Significant Risk in ISA315 - it focuses on inherent risks.

[@adammgando8050]

Can you say a business that does more sales on credit being an inherent risk since there is a risk of revenue misstatements due to irrecoverable debts

[@amandalovestoaudit]

Absolutely a risk!

[@shnjose1]

Hi Amanda, I have a question, A pharmaceutical company, for 1 medicine they are not showing the process to the auditor and they have a protection from law for the same. As an auditor what we have to do in this situation? Is this act is limiting our scope?

[@amandalovestoaudit]

Oooh - if the legal structure of the company prevents you from investigating - you’d have to disclose a scope limitation

[@ruthmanu1622]

1) risks related to technologic 2)revenue because of Pandemic [ COVID] 3) Impairment

[@chankaisoo4465]

Is a significant estimate always a significant risk?

[@Elvirgelion]

Hi, I wished to check, if the company is in adminstration, will the adminstrator still engage an auditor to audit the company

[@amandalovestoaudit]

Hi - ASIC provides all of its guidance on this matter here - in short, yes. download.asic.gov.au/media/1338848/info163-published-12-9-2012.pdf

[@Elvirgelion]

@@amandalovestoaudit I rad that PDF, I wished to check so this also means that its the same procedure on the steps to see if the auditor can accept the client right? The adminstrator is not the owner already right?As he is helping to shareholders correct?

[@newlife4148]

So pretty 🙏