In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
A) the internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee
B) the risk that the internal control system will not detect a material misstatement of a financial statement assertion
C) the risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion
D) the susceptibility of a financial statement assertion to a material misstatement, assuming there are no related controls

Question

Quizplus · Accepted Answer

Inherent risk is the susceptibility of a financial statement assertion to a material misstatement, assuming there are no related controls. It helps the auditor assess the risk of material misstatement in the financial statements and plan appropriate audit procedures to mitigate that risk. Option A refers to the internal audit's objectivity, option B refers to control risk, and option C refers to detection risk.

In a Financial Statement Audit, Inherent Risk Is Evaluated to Help