Recall the definition of inherent risk. Why is it important for internal auditors to focus on...

Recall the definition of inherent risk. Why is it important for internal auditors to focus on inherent risk during the planning phase of an assurance engagement?

Auditing & assurance services, fourth edition.

Expert Solution

Definition of Inherent Risk:

Inherent risk is the susceptibility of an account balance or class of transaction to a material misstatements, assuming that there were no internal control exit.

To assess the inherent risk, the auditor should evaluate numerous factors, having regard to his experience of the entity from previous audit engagement of the entity, controls established by management to compensate for a high level of inherent risk, and his knowledge of any significant changes which might changes which might have taken place since his last assessment.

It is important for internal auditor to focus on inherent risk during the planning phase of assurance engagement, as internal auditor need to verify whether internal controls are effective or not so they need to assume if there were no internal controls bare there than what is the risk factors are there.

Auditor need to collect all information & evidences from the management to evaluate the inherent risk factor.

Internal auditor need to evaluate the integrity of management management experience and knowledge & other functions of organisations.

So it is too important for the internal auditor to focus on inherent risk.

ekkarill92 answered 1 year ago

Management tends to focus on residual risk instead of inherent risk. Why do you think this...

Management tends to focus on residual risk instead of inherent risk. Why do you think this is so? Why should internal auditors consider both inherent risk and residual risk when planning an assurance engagement?

Define inherent risk. Can the auditors reduce inherent risk by performing audit procedures? 2. What are...

Define inherent risk. Can the auditors reduce inherent risk by performing audit procedures? 2. What are the major purposes of obtaining representation letters from audit clients? 3. Simulation Auditors consider financial statement assertions to identify appropriate audit procedures. For items a through f, match each assertion with the statement that most closely approximates its meaning. Each statement may be used only once. Assertion Statement a) Completeness b) Cutoff c) Existence and occurrence d) Presentation and disclosure e) Rights and obligations...

There are many types of risk inherent in business operations. focus on credit, market, and operational...

There are many types of risk inherent in business operations. focus on credit, market, and operational and financial risks. Identify a company representative from each group and how they would manage their risk exposure.

How does inherent risk interact with residual risk when conducting a risk assessment in internal audit?

Internal auditors are an important part of the internal control structures of all types of organizations....

Internal auditors are an important part of the internal control structures of all types of organizations. a) Describe the objectives of an internal audit function. b). Explain two ways in which internal auditors can maintain independence with respect to the activities they audit.

Internal control is important to an organization. Why do you think external auditors need to understand...

Internal control is important to an organization. Why do you think external auditors need to understand their client's internal control over financial reporting?

Explain the linkages between internal controls, internal auditors, external auditors, and controllers.

Why is it important for auditors to use analytical comparisons such as the ratios in the...

Why is it important for auditors to use analytical comparisons such as the ratios in the Sunbeam case to evaluate possible red flags that may indicate additional auditing is required? How does making such calculations enable auditors to meet their ethical obligations

“Why is it important for manufacturing firms to focus on MRP?”

Explain how internal control work done by auditors impacts the audit risk equation. Does control risk...

Explain how internal control work done by auditors impacts the audit risk equation. Does control risk change if the auditors are providing an opinion over internal controls? How is detection risk impacted?

Question