Question

The confirmation of accounts receivable is most closely associated with

A.	Business risk.

B.	Detection risk.

C.	Inherent risk.

D.	Relative risk.

Answer 1

Solution: Detection risk

Explanation: The confirmation of accounts receivable will be needed whenever they are material and it is reasonable and practicable to do so. Detection risk refers to a possibility that an auditor may not be able to find material misstatements in the financial statements of an entity such as the confirmation of accounts receivable. Business risk when the entity has possibility of lower than anticipated profits or suffer a loss instead of earning profit; and is usually is influenced by factors such as input costs, competition, sales volume, per-unit price, government rules, and overall economic climate. Inherent Risk arises due to error or omission due to the factors other than the control failure and could not be detected or protected by the entity's internal control. Relative risk is an approach on making a comparison of the risks for the two groups.