What is Spectrum of inherent risk?
In short
Auditors assess inherent risk along a spectrum from lower to higher, based on the likelihood and size of possible misstatement. Risks at the upper end of the spectrum are significant risks.
Key takeaways
- The assessment drives how persuasive the audit evidence needs to be.
- It is assessed separately from control risk under American Institute of Certified Public Accountants standards.
- Inherent risk factors help place a risk on the spectrum.
Where it's tested
AUD: Assessing Risk of Material Misstatement — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A client operates with weak segregation of duties over its cash disbursement process. All else equal, how should the auditor respond?