Assessment of Engagement Risk :
The assessment of engagement risk is a critical part of the audit process and should be done prior to the acceptance of an audit engagement
since it affects the decision of accepting the engagement and also in planning decisions if the audit is accepted.
The process of assessing engagement risk consists of identifying risk factors and exercising professional judgment to determine whether such factors, separately or in combination, are significant enough to require a special response. Prior to accepting an engagement, the auditor should obtain a preliminary knowledge of the banking industry and of the nature of ownership, management and operations of the bank to be audited.
For a prospective audit engagement, the auditor must assess engagement risk based on past experience in the industry, the information obtained from predecessor auditors, inquiries of senior management, those charged with governance, and other appropriate sources. For a continuing audit engagement, the auditor must assess engagement risk based on his experience with the bank and additional audit procedures performed in the previous audits.
For an audit engagement for which a higher engagement risk is assessed, the auditor should respond appropriately in planning and performing
the audit. The auditor then needs to determine whether the increased engagement risk is pervasive to the audit engagement as a whole, as a result of one or more pervasive risks, or as a result of one or more specific risks.
The auditor would ordinarily need to document the assessment of engagement risk, factors identified as increasing engagement risk, and, if the
additional information obtained during the engagement indicates a change in engagement risk, the auditor would need to document its considerations as to whether the planning decisions remain appropriate and the effect, if any, on the audit plan. A yearly assessment of engagement risk will ensure the firm’s continuing independence and ability to act and that the engagement risk is still within the firm’s pre-determined appetite for risk.