Why do auditors assess a high level of inherent risk for related parties and related-party transactions?
A) lack of independence between the parties
B) the accounting disclosure requirement
C) both A and B
D) requirements of generally accepted accounting principles

Question

Quizplus · Accepted Answer

Auditors assess a high level of inherent risk for related parties and related-party transactions due to the lack of independence between the parties, as well as the accounting disclosure requirements. Both factors increase the risk of material misstatements in the financial statements, thus leading auditors to assign a higher inherent risk. Additionally, while generally accepted accounting principles do address related-party transactions, they do not necessarily require auditors to assess a specific level of inherent risk.

Why Do Auditors Assess a High Level of Inherent Risk