What is inherent risk?
A)The probability that some accounts are more susceptible to misstatement than others.
B)The probability that the client's internal control policies and procedures will fail to detect material misstatements.
C)The probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements.
D)The probability that the auditor may not detect material misstatements in the financial statements.

Question

Quizplus · Accepted Answer

Inherent risk is the possibility of material misstatement occurring in transactions entering the accounting system used to develop financial statements. This means that the transactions themselves have a risk of errors or omissions that could affect the financial statements.

Note: While options A, B, and D are related to the risk of misstatement, they do not specifically refer to inherent risk. Option A refers to account-level risk, option B refers to control risk, and option D refers to detection risk.

What Is Inherent Risk