Which one of the following statements regarding inherent risk is correct?

Question

Quizplus · Accepted Answer

Inherent risk is the assessment of risk to an audit as if there were no internal control; it is a function of the industry, the entity, and the environment in which the entity operates. Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain experience, even when there is inherent risk. This is because the auditor has less knowledge of the client in the first year and less confidence in the controls. In subsequent years, as they gain a better understanding of the client and its controls, they will generally reduce the inherent risk. Therefore, option (C) is the right answer.

Which One of the Following Statements Regarding Inherent Risk Is