The new approach was based on assessing the risk in business as well as process level risk while performing the audit and as such, the fundamental process of performing audit took a new turn to accommodate the changes that are perceived to take place in the 21st century.
There are many studies including Humphrey, Jones, and Khalifa that assess the impact of this approach on the actual audit engagements and as such discussed at length as to what is being done and what is required further to make this practice more effective to cater to the needs of the modern business practices. Further studies also indicated the overall effectiveness with which this new methodology has been implemented by the audit firms while conducting the audits.
Business Risk Approach was believed to be initiated by the large firms that were under constant criticism from various quarters for their failure to critically assess and identify the failures of the firms like Enron. Thus business risk approach is not considered as feasible for the smaller firms that may not have the required expertise and depth to conduct appropriate business risk audits of their clients.
The trends in the audit industry indicated that there is a gradual increase in the costs of executing the existing practices because the overall complexities of doing business have increased to the manifold in the current times. The greater cost on the imparting necessary knowledge and skills to audit staff as well as the more focus on the use of more value-added services, audit, as a profession integrated critical changes into itself to cater to the more challenging requirements of the new business entities that become more vulnerable to the risk owing to more volatile nature of the business. (Eilifsen, Knechel, &. Wallage, 2001)
Business risk is generally described as the risk that the business will achieve its intended objectives.