Risk of material misstatement

Meaning of inherent risk

Arpita  bansal

Arpita bansal

CA Inter




Answers (1)

Inherent risk is the possibility of incorrect or misleading information due to omission or error in accounting statements resulting from something other than the failure of controls. It is most likely to occur when transactions are complex, or in situations that require a high degree of judgment in regard to financial estimates. Audit risk = Control risk + Detection risk + Inherent risk. Control risk is due to lack or failure of internal controls (Frauds), this can be avoided by placing proper internal controls. Detection risk is when auditor fails to detect errors in financial statements, it can be countered by increasing testing. Inherent risk can't be easily avoided through increased auditor training or creating controls in the auditing process.

sudha reddy

sudha reddy



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