ABSTRACT
This chapter examines what gives rise to the risk of material misstatement and how should the risks be managed, in relation to financial instruments. To provide the appropriate context, it commences with a discussion of the financial reporting eco-system by understanding the accounting process and the key stakeholders involved in financial reporting. The chapter provides a brief overview of IFRS 9, followed by the risks of material misstatements in financial assets and liabilities. Whilst there are many existing internal controls frameworks being adopted by companies, it focuses on those internal control measures over the recognition, classification and measurement concerns. The chapter ends with the challenges in sustaining effective internal controls and the limitations. The business process and information technology (IT) system infrastructure within the organization are areas of potential financial reporting risks. The interactions between various risk factors make measurement for valuation a challenge in financial reporting.
