In a financial statement audit, inherent risk is evaluated to help an auditor asses 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 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 to assess the risk of a material misstatement in the financial statements and determine the nature, timing, and extent of audit procedures needed to address those risks. Option A is related to the internal audit department's objectivity, not inherent risk. Option B is related to control risk, not inherent risk. Option C is related to detection risk, not inherent risk.

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