Explain what is meant by ‘inherent risk’.
Contractors Depot Co is an established builders’ merchant, and a new audit client of your audit firm. The next financial statements of the company due for audit, will be those for the year ending 31 July 2019 and the following information is relevant for the audit. The company operates from 24 sites around the country. All sites comprise a shop and a yard with the largest site also accommodating the company’s head office. During the year, each of the shops was subjected to a major repair and refurbishment programme. Each site sells a wide range of products, by way of customer collection or by company delivery, including timber and consumable materials, decorating and general building products. Ranges of tools and equipment are also available both for sale and for short-term hire, whilst very large stockpiles of sand and gravel are kept in each yard to meet customer demand. Contractors Depot Co owns a large volume of mobile plant and equipment to service its yard and delivery operations. These include mechanical shovels, dumper trucks, lorries and vans.Each site is open throughout the year, closing only for public holidays. Consequently 18 full-time shop, yard and delivery staff are employed at each site together with significant numbers of part-time and temporary
employees.
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Explain what is meant by ‘inherent risk’.
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