Question

In: Accounting

What are some of the accounts in a trial balance or income statement which can be...

What are some of the accounts in a trial balance or income statement which can be considered as Fraud risk and inherent risk?

Solutions

Expert Solution

Inherent Risk

Inherent risk is one factor, along with control risk, that an auditor uses to assess the risk of material misstatement associated with a particular financial statement line item or audit area.

Example - financial transactions that require complex calculations are inherently more likely to be misstated than simple calculations. Cash on hand is by nature more susceptible to theft than a large inventory of coal. Rapid technological developments in a particular industry may create a higher risk of inventory becoming obsolete more quickly than in other industries.

Fraud Risk

The possibility of the organization being subject to fraudulent activity.An effective fraud risk management assessment should identify where fraud may occur and who the perpetrators might be.


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