We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Inherent Risk in Auditing

The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

Inherent risk is the susceptibility of an account balance or class of transactions to misstatement that could be material either individually or when aggregated with misstatement in other balances or classes assuming that there were no related internal controls. This risk mainly arises at the level of management and the risk factor generally being high. Factors Affecting Inherent Risk:

At the level of financial statement
Integrity of management;
Management’s experience and knowledge;
Unusual pressure on management;
Nature of entity’s business;
Factors affecting industry;

At the level of Account Balance & Transaction
Quality of Accounting System;
Accounts prone to misstatement;
Complex transaction;
Judgement involved in determining balance;
Assets prone to misappropriation;
Unusual transaction at or near the period end;
Transaction not subjected to ordinary processing;

As per SA 315 “Identifying and assessing the risk of material misstatement through understanding the entity and its environment” the auditor shall Identifying risks throughout the process of obtaining an understanding of the entity and its environment, including relevant controls that relate to risk and by considering the classes of transaction, account balance and disclosure in the financial statement. Assess the identified risks and evaluate whether they relate more pervasively to the financial statement as a whole and potentially affect many assertions. Relate the identified risks to what can go wrong at the assertion level, taking account of relevant controls that the auditors intend to test Consider the likelihood of misstatement including the possibility of multiple misstatements and whether the potential misstatement is of a magnitude that could result in a material misstatement. As per SA 330 “The Auditor’s Response to Assessed Risk” while designing the future audit procedures to be performed, the auditor shall consider the reason for the assessment given to the risk of material misstatement at the assertion level for the likelihood of material misstatement due to the particular characteristics of the class of the transaction, account balance or disclosure and obtain more persuasive audit evidence the higher the auditor’s assessment of risk.

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59