What is the initial step in the exam question technique for review assurance engagements?

Identifying a potential audit risk from the question is indeed a foundational step in the exam question technique for review assurance engagements. Recognizing these risks is crucial because it directs the auditor's attention towards areas that may require further investigation or scrutiny during the engagement. By pinpointing potential risks, the auditor can better frame their approach, ensuring that they address the most pertinent issues that could impact the reliability of the financial statements or the overall assurance provided.

This step sets the tone for the entire review process, allowing the auditor to think critically about what aspects of the scenario might lead to material misstatements or other concerns that could affect their conclusions. Understanding the risks involved ensures that subsequent steps in the process, such as formulating relevant inquiries to management or assessing the completeness of the financial statements, are relevant and targeted.

Recognizing potential audit risks first also helps in determining the level of assurance required, as more significant risks may necessitate a higher level of scrutiny and more robust evidence gathering. Therefore, starting with this identification not only shapes the overall strategy for the engagement but also enhances the auditor's ability to evaluate the effectiveness of internal controls and the reliability of financial reporting.