MANAGEMENT

Detailed explanation-1: -Inherent risk is the risk posed by an error or omission in a financial statement due to a factor other than a failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex, or in situations that require a high degree of judgment in regard to financial estimates.

Detailed explanation-2: -Inherent Risk is typically defined as the level of risk in place in order to achieve an entity’s objectives and before actions are taken to alter the risk’s impact or likelihood. Residual Risk is the remaining level of risk following the development and implementation of the entity’s response.

Detailed explanation-3: -1. The introduction of five new inherent risk factors to aid in risk assessment: subjectivity, complexity, uncertainty, change, and susceptibility to misstatement due to management bias or fraud.

Detailed explanation-4: -Examples of Inherent Risk There are chances of error in some activities out of multiple activities performed or the same action multiple times. For example, there are chances of non-recording purchase transactions from a vendor having multiple transactions or recording the same with the wrong amount.

Detailed explanation-5: -Inherent risk is the amount of risk that exists when some threat goes untreated or unaddressed. This also means that the less an organization tries to manage risk, the more inherent risk it has.