Inherent Risk

question 103

Multiple Choice

Inherent risk

• A)exists because all control structures are flawed in some ways.
• B)is the likelihood that material misstatements exist in the financial statements of the firm.
• C)is associated with the unique characteristics of the business or industry of the client.
• D)is the likelihood that the auditor will not find material misstatements.

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Definitions:

Compensatory Damages

Compensatory damages are monetary awards to a plaintiff in a lawsuit, intended to compensate for actual losses or injuries incurred due to the defendant's actions.

Consequential Damages

A type of damages in a lawsuit that result not directly from the act but as a consequence of the initial act, often involving loss of profit or other indirect losses.

Liquidated Damages

Predetermined damages agreed upon by the parties in a contract to be paid if a specific breach occurs, as compensation not as a penalty.

Incidental Damages

Compensation for secondary or unforeseen losses resulting from a breach of contract.