Which one of the following is an example of the concept of inherent risk?
A) Accounting systems with vouchers have many more controls built in, so the risk that there will be errors on the financial statements is reduced.
B) Loans receivable for a finance company are less likely to be collectible than those of a bank.
C) Humans make more errors than computers; therefore, a manual accounting system is riskier than a computerised system.
D) Audits with larger sample sizes are less risky than those with smaller sample sizes.

Question

Quizplus · Accepted Answer

Inherent risk refers to the risk that exists within an organization's operations without any action taken to control or mitigate it. Loan receivables for a finance company have a higher inherent risk because they are less likely to be collectible compared to those of a bank. The other options provide examples of control risk and detection risk.

Which One of the Following Is an Example of the Concept