An Auditor Who Audits a Business Cycle That Has Low Inherent Risk Should?

When auditing a business cycle with a low inherent risk, an auditor should: raise the area’s tolerated misstatement.

You might also be thinking, How can an auditor reduce inherent risk?

The type, timeliness, and scope of the substantive processes done by the auditor lower the amount of discovery risk. As the proper degree of detection risk drops, the auditor should gather more evidence from substantive processes.

Similarly, How does inherent risk affect audit risk?

Two of the three aspects of the audit risk model that auditors use to estimate the total risk of an audit are inherent risk and control risk. The danger of a major misrepresentation in a company’s financial statements without considering internal controls is known as inherent risk. 27.02.2020

But then this question also arises, What is meant by low acceptable audit risk?

When auditors choose a lower acceptable audit risk, they want to make sure the financial statements aren’t significantly incorrect. A risk of zero means certainty, whereas a risk of one hundred percent means utter uncertainty.

What is inherent audit risk?

The risks of major misstatements in financial statements occurring for causes other than a breakdown of internal control over financial reporting, as well as detection risks, are known as inherent audit risks.

What is low inherent risk?

When the inherent risk is low, you may use fewer or less stringent substantive processes. The existence assumption for payables is an example of a low inherent risk.

Related Questions and Answers

How can an auditor reduce audit risk?

Conduct thorough audit planning prior to carrying out audit processes. – Create audit processes that are appropriate for the risk level. – Appropriately assign employees based on their talents and expertise. – Ensure that audit work is properly monitored and supervised.

Can an auditor control audit risk?

The amount of detection risk necessary to reduce audit risk to an acceptable level determines the scope and form of audit operations. Auditors have no influence over the inherent danger or risk. They may, however, balance these risks by selecting an appropriate detection risk in order to keep the total audit risk low.

What affects inherent risk?

Risk Factors That Are Inherent Susceptibility to identity theft or false reporting. Calculations or accounting that is difficult. Knowledge and experience of accounting people. There is a need for judgment.

How can an auditor use the audit risk model?

An audit risk model is a conceptual tool used by auditors to assess and manage the numerous risks associated with conducting an audit. The tool assists the auditor in determining what forms of evidence are required and how much of each is required for each relevant allegation.

Can we lower inherent risk?

Summary. In risk management, inherent risk refers to the degree of risk that exists without the use of controls or mitigations to mitigate its effect or severity. The effect and possibility of inherent risk may be reduced by risk management techniques, and the remaining risk is known as residual risk.

Should audit risk be high or low?

Audit Risk that is Acceptable Inherent Danger Procedures for Auditing / Evidence Requirements Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low Medium Low

What is inherent risk example?

Inherent Risk Examples There is a potential that certain actions involving numerous active or doing the same action many times may result in an error. There’s a potential, for example, that a buy transaction from a seller with many transactions may get unrecorded or will be recorded with the incorrect amount.

What is inherent risk in operational risk?

Inherent risk is often described as the degree of risk that must be accepted in order for a business to accomplish its goals, before any steps are made to reduce the risk’s effect or possibility. The degree of risk that remains after the entity’s response has been developed and implemented is known as residual risk.

What inherent risk factors should an auditor consider when auditing the revenue process of a computer manufacturer?

When auditing a computer manufacturer’s revenue process, what inherent risk concerns should an auditor consider? The auditor will want to take into account industry-specific characteristics such as the industry’s high level of rivalry and the rapid pace of technological progress.

What is inherent and control risk?

A major misrepresentation in the financial statements as a consequence of an omission or an error in the financial statements owing to circumstances other than a failure of control is referred to as an inherent risk. Control risk, on the other hand, is a risk associated with financial statement falsification as a result of failures in a company’s internal controls.

When planning a financial statement audit the auditor should assess inherent risk at the?

26. The auditor must assess audit risk at the account-balance or class-of-transactions level since this helps determine the scope of auditing procedures for the balance or class, as well as associated assertions.

Why should an auditor assess business risk in an organization?

A company’s financial statements will be substantially misstated if the financial effect of a business risk is not properly recorded. As a result, auditors examine company risks as part of risk assessment activities and to build audit processes to identify probable financial statement misstatements. 23.05.2019

How do you identify inherent risks?

The expertise and judgment of an auditor about the industry, business transactions, and firm assets may aid in determining inherent risk. Companies with complex business structures and transactions have a higher risk profile.

What are the 3 types of audit risk?

Inherent risks, detection risks, and control risks are the three main forms of audit risks.

Why is inherent risk important?

An inherent risk score is beneficial in three ways: it’s needed to compute residual risk scores, it’s a relevant statistic for audit and compliance, and it helps with risk management resource allocation. 15.06.2021

How do you increase inherent risk?

One of the primary aspects that contribute to the inherent risk is the manner the company conducts its day-to-day business activities (IR). It raises the amount of inherent risk if it can’t deal with the changing environment and displays signs of adaptability.


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The “the risk of material misstatement refers to” is a question that is asked in the business world. An auditor who audits a business cycle that has low inherent risk should?

  • if an auditor establishes a relatively high level for materiality, then the auditor will
  • if planned detection risk is reduced, the amount of evidence the auditor accumulates will
  • when evaluating the audit findings, the auditor should be satisfied that the
  • after evaluating inherent risk and control risk, the auditor
  • detection risk is inversely related to the
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