It is important for the accountant to understand risk and conduct risk assessments since the accounting field is often dynamic and multifaceted. Specifically, it is essential to understand the risk in order to have a clear knowledge of the effective evaluation of the internal and external control systems to prevent and detect potential misstatements. In an accounting environment, there is always some level of control risk due to inherent limitations that are associated with external and internal accounting control systems.
Conducting risk assessment gives an accountant a clue of the inefficiencies and efficiencies that might exist within the control systems in order to plan or perform the necessary adjustments. An audit cannot be performed without conducting a risk assessment because the result of such a process would not accommodate the potential risks that might have impacted the outcome. In other words, a complete audit is based on risk assessment as a blueprint for reviewing the control systems, in terms of their effectiveness or otherwise.
The pros and cons of having a risk assessment for an organization are discussed below. The pros of a risk assessment for an organization include guidance in making informed decisions, aligning the risks to organization objectives, and facilitating the process of putting in place appropriate controls to eliminate potential risks. The cons of a risk assessment to an organization include laxity on the part of decision-makers when the risk mitigation might attract more costs. Besides, the risk predictions might compromise the implementation of some accounting strategies that are deemed risky with high benefits.