Jibbery Company has numerous transactions with related parties.For example,it has borrowed money from shareholders,purchases raw materials from a subsidiary company,and sells finished goods to its parent company.Which of the following describes one of the impacts of these transactions on risk assessment ?
A)inherent risk would be set as low
B)inherent risk would be set as high
C)control risk would be set as low
D)audit risk would be decreased

Question

Quizplus · Accepted Answer

Transactions with related parties increase the inherent risk level because there is a higher risk of error or fraud due to the potential for bias or conflicts of interest. This increased inherent risk level would require more substantive testing and could also increase the control risk level if there are inadequate or ineffective controls in place. Therefore, option B is the best choice as it aligns with the negative impact on risk assessment caused by related party transactions. The other options are not accurate in this scenario.

Jibbery Company Has Numerous Transactions with Related Parties