Matilda Papas has been asked to lead her audit team in the audit of the Toronto Raptors basketball team. She performed a review of their risks and found that the team's risks tend to be driven by the nature of certain significant accounts or business activities that the Raptors pursue. This risk is
A) audit risk.
B) inherent risk.
C) control risk.
D) detection risk.

Question

Quizplus · Accepted Answer

The risk that Matilda Papas identified is inherent risk, which is the risk associated with the nature of the entity's business activities or significant accounts. This risk cannot be eliminated through the design or operation of internal controls or the audit process. It is important for the audit team to properly assess and understand inherent risk in order to develop an effective audit plan. The other choices (audit risk, control risk, detection risk) are all components of the overall audit risk model, which assesses the risk that the audited financial statements may contain a material misstatement.

Matilda Papas Has Been Asked to Lead Her Audit Team