Most auditors assess inherent risk as high for related parties and related-party transactions because:
A)of the unique classification of related-party transactions required on the balance sheet.
B)of the lack of independence between the parties.
C)of the unique classification of related-party transactions required on the income statement.
D)it is required by generally accepted accounting principles.

Question

Quizplus · Accepted Answer

Auditors assess inherent risk as high for related parties and related-party transactions because of the lack of independence between the parties. Related parties have an inherent conflict of interest, which increases the risk of financial statement manipulation and fraud. Therefore, auditors assess the risk of material misstatement as high for related-party transactions. It is not required by generally accepted accounting principles to assess inherent risk as high for related-party transactions.

Most Auditors Assess Inherent Risk as High for Related Parties