Inherent risk is the
A) Probability that some accounts are more susceptible to misstatement than others.
B) Probability that the client's internal control policies and procedures will fail to detect material misstatements.
C) Probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements.
D) Probability that the auditor may not detect material misstatements in the financial statements.

Question

Quizplus · Accepted Answer

Inherent risk refers to the probability that material misstatements have occurred in transactions or events that enter the accounting system used to develop financial statements. It is a function of the nature of the client's business and the economic environment in which it operates, and it is not impacted by the effectiveness of the client's internal controls or the auditor's detection risk.

Inherent Risk Is the