How can an auditor reduce a client’s inherent risk?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
How can an auditor reduce a client’s inherent risk?
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Step 1
- Inherent risk is the risk of material misstatement assuming there are no related controls.
- Inherent risk is assessed primarily by the auditor's knowledge and judgment regarding the industry, the types of transactions occurring at a particular company and the assets that the company owns.
- An auditor assesses each audit area as either low, medium or high in inherent risk.
- Inherent risk is embedded in a business and its transactions regardless of the mitigation through internal control.
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