What is inherent risk in an audit?
Inherent risk is the susceptibility of a relevant assertion to a material misstatement, assuming no internal controls exist. The auditor will assess inherent risk as high if the financial statements are likely to contain material misstatements and will assess inherent risk as low if the financial statements are not likely to contain material misstatements.
Some common examples that increase inherent risk include:
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What is audit risk?
Audit risk is the risk that the auditor will fail to modify an opinion on the financial statements when they are in fact materially misstated. This will typically arise because an auditor will never be able to obtain absolute assurance by conducting audit procedures. Audit risk will only be able to be reduced to an […]