Figure 5-2 describes a top-down perspective for understanding a client's business. Consider how an auditor can better understand how to approach testing management assertions for inventory related transactions and accounts by first working through this process (that is, by linking external risks to the inventory management business process to identify residual risks). As part of your answer, compare this perspective to a strategy of addressing each of the management assertions for material inventory related transactions and accounts without first working through this process.

Figure 5-2

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Risk of Material Misstatement Strategic Analysis Organizational Business Models External Risk Analysis Strategic Risk Evaluation Internal Control Performance Data Strategic Risks Process Analysis Process Maps Internal Risk Analysis Process Risk Evaluation Internal Control Performance Data Process Risks Residual Risk Analysis Residual Risks Detection Risk Risk of Material Misstatement Risk of Material Weakness in Internal Control Over Financial Reporting