Audit approaches and business risk auditing

This chapter examines the development of approaches to the conduct of the audit which place emphasis on evaluating the business risk of the entity being audited as a means of directing the collection of audit evidence to support the audit opinion. ¹ Although the importance of understanding the business of an audited entity and the associated risks have long been recognized in audit methodologies, more specific business risk audit (BRA) approaches emerged during the 1990s. These were influential in the subsequent revision of standards for audit practice, including International Standards on Auditing (ISAs), and thus have had an impact for auditors worldwide. This chapter discusses the emergence of BRA, what research has revealed about its impact on the content and outcomes of financial statement audits, how the approach has been accommodated in auditing standards and the current status of business risk-based auditing as an influence on audit practice.