What is Inherent risk factors?
In short
Inherent risk factors are characteristics that make an assertion more likely to be misstated before considering controls: complexity, subjectivity, change, uncertainty, and susceptibility to misstatement from management bias or fraud.
Key takeaways
- Accounting estimates often score high on subjectivity and uncertainty.
- New standards, systems or business lines bring change risk.
- The factors are considered together when assessing inherent risk.
Where it's tested
AUD: Assessing Risk of Material Misstatement — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A client operates with weak segregation of duties over its cash disbursement process. All else equal, how should the auditor respond?