Applying a business risk audit to intercontinental hotel

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Risk is inevitable in any business or entrepreneurship. When a business is launched, then some positive outcome is expected; yet there are always chances for negative results. The purpose of this assignment is consider the ways of forecasting and identifying risk and managing it, i.e. reducing or eliminating possible risks or finding ways for an entity to revive from the damage brought about by risks as soon as possible. All the above mentioned is subject of audit also considered in this assignment. InterContinental Hotel Group is chosen as the object for auditing internal and external business risks. Audit is generally defined as: “an examination and verification of a company’s financial and accounting records and supporting documents by a professional, such as a Certified Public Accountant”; “an IRS (Internal Revenue Service) examination of an individual or corporation’s tax return, to verify its accuracy” (Investorwords.com). Risk is commonly interpreted as the deviation of the anticipated results of future events which can affect the value of the latter. The term audit risk implies the possibility of the audit procedure resulting into an inappropriate conclusion or opinion on the financial statements. These can be neglecting discrepancies with an official standard, especially the ones containing a material misstatement, or recognition of an error when actually there is any (). One should differentiate between audit risk and business risk. Business risk relates to the loss which organization might sustain if it does not achieve its goals and objectives. “It is essentially the potential cost incurred if the business does not achieve its strategic plans” (Swanson, n.d). In many entities the assessment and management of business risk has developed into formalized enterprise risk management, or ERM. Audit risk relates to whether the procedures of internal and/or external audit achieved their objectives successfully. Traditionally, audit risk has been interpreted as “strictly the risk of incorrect audit conclusions” (). Nowadays, however, the concept tends to be extended to deal with more aspects, e.g. mistakes or inefficiency of internal audit. Swanson puts an equal sign between business risk and enterprise risk and refers to COSO’s definition of the latter term. According to it, ERM is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives (Enterprise risk management 2004, p. 6). ERM is conducted entity-wide and implies identification, investigation, quantification, response and monitoring of outcome of potential event. As a rule ERM is executed by internal auditors who report to managers or in many organizations directly to the board of directors. The procedure is designed to provide management of business risk and assure that decisions concerning reducing the risk are taken on daily basis. ERM is based on a principle that every entity exists to provide value for its stakeholders (FAQs, 2006; Internal control, 2006). COSO describes the following stages in the ERM process: internal environment,

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