Final answer:
Auditors identify business risks in order to address potential material misstatements. Business risks can arise from various factors such as changes in the economic environment, technological advancements, industry competition, and internal control weaknesses.
Step-by-step explanation:
In auditing, an auditor identifies business risks that may result in material misstatements. These risks can include fraud, errors, and non-compliance with laws and regulations.
Business risks can arise from various factors such as changes in the economic environment, technological advancements, industry competition, and internal control weaknesses.
The identification of business risks helps the auditor in assessing the risks of material misstatement and designing appropriate audit procedures to address those risks.