The risk of a company's internal auditing processes failing to catch the misstated dollar amount of revenue on the company's income statement is classified as inherent risk.

Question

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Inherent risk refers to the susceptibility of an assertion about a transaction, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls. The risk described is more accurately associated with detection risk, which is the risk that the procedures performed by the auditor will not detect a misstatement that exists and that could be material.

The Risk of a Company's Internal Auditing Processes Failing to Catch