Which Statement Regarding Inherent Risk Is Correct

question 3

Multiple Choice

Which statement regarding inherent risk is correct?

• A) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain experience, even when there is inherent risk.
• B) The inherent risk assigned in the audit risk model is unaffected by the auditor's experience with client's organisation.
• C) The inherent risk assigned in the audit risk model is dependent upon the strengths in client's internal control system.
• D) Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect.

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Definitions:

Private Sector

The part of the economy that is run by private individuals and companies, rather than the government, and is driven by profit.

Public Sector

The part of the economy that is controlled by the government and includes government services and entities.

Profit And Loss

The financial statement that summarizes revenues, costs, and expenses to show the net profit or loss of a business over a specific time period.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction, which are not reflected in the transaction's price, such as pollution caused by manufacturing.