1

 Modeling risks
 Operational risks
 Price risks
 Regulatory risks
 Replacement risks
 Reputational risks
 Settlement risks
 Solvency risks
 Transfer risks

2.

 The need to process high volumes of transactions accurately within a short-time.

 The need to use electronic fund transfer or other telecommunications system to transfer
ownership of large sums of money with the resultant risk of exposure to loss arising from
payments to incorrect parties through fraud or error.
 The conduct of operations in many locations with a resultant geographic dispersion of
transaction processing and internal controls.
 Intra-Day Payment Risk
 Theft and fraud
 Environment
 Laws and regulations
 Fraudulent activities
 Money Laundering

3.

Money laundering- in money laundering the proceeds from crime are converted into funds that appears
to have a legitimate source. Money laundering is the process of making illegally obtained funds appear
legitimate by passing them through a complex sequence of financial transactions. It involves disguising
the origins of the money, typically generated from criminal activities, such as drug trafficking or fraud, to
make it seem like it comes from legal sources. For example, suppose a drug trafficker has 1,000,000 in
illicit cash. To launder the money, they might use a network of front companies or shell corporations to
create the illusion of legitimate income. They could then mix the illegal funds with legal funds, making it
difficult to trace. These funds might be invested in legal businesses, real estate, or moved to offshore
accounts, making it challenging for authorities to uncover their criminal origins.

4.

 Oversight and involvement in the control process by those charged with governance
 Identification, measurement, and monitoring of risk
 Control activities
 Monitoring Activities

5.
  Country risk
 Interest rate risk
 Fiduciary risk
 Credit risk
 Currency risk
 Liquidity risk
 Legal and documentary risk

6.

Credit risk is the risk that a customer/counterparty will not settle an obligation for full value when due or
at any time thereafter. This is considered a biggest risk for a banks. Default can occur on mortgage, credit
cards, fixed income securities. Failure to meet obligational contracts can also arise such as derivatives
and guarantees provided.

Example 1: For example, the bank has receivable of 1,000,000 from customer A, consequently, Customer
A only paid 800,000 when it is due and demandable. So in this example the 200,000 remaining balance is
credit risk to the bank since a risk arise when a customer did not settle an obligation for full value of
1,000,000.

Example 2: Another example, for instance, if a bank lends a substantial amount of money to a borrower
with a poor credit history and no collateral, there's a high credit risk involved, as the borrower may
struggle to make repayments, leading to potential losses for the bank. In this example the bank may face
credit risk for the full sum of money being borrowed.

7.

Fiduciary risk is the risk of loss arising from such failure to maintain safe custody or negligence in the
management of assets on behalf of other parties. For example: When a trustee, responsible for
managing assets for the benefit of others, breaches their duty by making self-interested investment
decisions, potentially harming the beneficiaries.

However, legal and documentary risk is the risk that arises when contract are documented incorrectly or
are not legally enforceable in the relevant jurisdiction in which the contracts are being enforced. This is
also risk that the assets will turn out to be worth less and liability will turn out to be greater than
expected because of inadequate or incorrect legal advice or documentation. For example: ABC Company
contract with vague language concerning payment terms for services provided. The absence of clear
instructions regarding payment timing and penalties for delays might result in disagreements and the
possibility of legal proceedings, causing both financial losses and harm to the parties' reputations.

8. The audit process is the series of steps followed by an auditor in order to conduct an audit
engagement with a client. The exact steps followed will depend on the nature of the audit engagement,
but typically follow the general steps/phases.

Initial Planning: The initial planning phase of an audit serves as its foundational step. In this phase,
auditors begin by identifying the audited entity, gaining an understanding of its business operations, and
pinpointing key personnel involved. They determine the scope of the audit, specifying which financial
statements or areas will be examined in detail. Additionally, this phase involves resource allocation,
assembling the audit team, and establishing a clear timeline for the audit's progression. The primary
outcome of this phase is the creation of a comprehensive audit plan that sets the direction and
objectives for the entire audit process.

Identify and Assess Risks: In the second phase, auditors delve into identifying and assessing risks
associated with the audit. This involves a thorough evaluation of potential risks of material misstatement
in the financial statements. Auditors consider inherent risks related to factors such as the industry,
economic conditions, and the audited entity's specific operations. Additionally, they scrutinize internal
controls to gauge the risk of control failures that could impact financial accuracy. Fraud risks and other
potential sources of error are also taken into account. The outcome is a well-documented risk
assessment that guides the selection of audit procedures and resource allocation to areas with higher
risks.

Design and Execute Responses to Risks: Following the risk assessment, the third phase revolves around
designing and executing audit procedures tailored to address the identified risks effectively. Auditors
develop substantive procedures, including testing transactions and verifying account balances, as part of
their examination. In cases where relevant, they plan and conduct tests of controls. Various testing
methods such as sampling, data analysis, and other audit techniques are executed during this phase. The
key outcome is the collection of substantial audit evidence, which serves as the foundation for
supporting audit opinions and conclusions about the financial statements.

Conclude and Communicate: The concluding phase of an audit represents the culmination of the
process. Here, auditors analyze the audit evidence to determine whether the financial statements are
free from material misstatement. Based on their findings, they formulate the audit opinion, which can be
unqualified (clean), qualified, adverse, or a disclaimer, depending on the circumstances. Simultaneously,
auditors prepare the audit report, which includes the auditor's opinion and any additional disclosures
required by auditing standards. This report serves as the primary means of communicating the audit
results to the client and other interested parties, providing assurance regarding the reliability of financial
information and compliance with relevant standards and regulations.

9. Professional competence refers to having the requisite knowledge, skills, and expertise to perform
tasks and make judgments effectively in a particular profession or field. Due care involves the careful and
diligent execution of professional responsibilities, with the aim of ensuring that all tasks are performed
with the level of care, thoroughness, and attention that is reasonably expected within that profession. As
they support the accuracy and dependability of financial information, professional competence and due
diligence are fundamental in the fields of auditing and accounting. Adequate professional competence is
the ability of auditors and accountants to comprehend complex financial transactions and correctly apply
accounting standards. Due care emphasizes the need for effort and completeness in the audit process,
from planning to reporting, to detect and address potential flaws or errors. This diligence assure that
financial statements are free from major misstatements and reflect an accurate and fair portrayal of a
company's financial status. In the end, financial reporting must be transparent, accountable, and credible
in order to benefit investors, creditors, and other stakeholders. This can only be done with competent
auditors and accountants.

10.

The objective of a financial statement audit is to provide an independent and objective evaluation of a
company's financial statements to determine whether they present a true and fair view of the company's
financial position and performance. The auditor assesses the accuracy, completeness, and adherence to
accounting standards to provide assurance to stakeholders, such as shareholders and creditors, about
the reliability of the financial information. To conclude, the primary object of a financial statement audit
is to provide assurance that financial statements fairly present the financial position of a company. This
assurance is very meaningful for external parties that rely on the financial statements, such as investors,
lenders, suppliers and even some customers.

11. Valuation, Existence, Rights and Obligation, Completeness