Which of the Following Statements Regarding Inherent Risk Is Correct

question 21

Multiple Choice

Which of the following statements regarding inherent risk is correct?

• A) Inherent risk is unaffected by the auditor's experience with client's organization.
• B) Most auditors set a low inherent risk in the first year of an audit and increase it if experience shows that it was incorrect.
• C) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company.
• D) Inherent risk is dependent upon the strengths in client's internal control system.

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Definitions:

Formal Group

A group formed with a specific structure and objective, often within organizational contexts, such as committees or work teams.

Ad Hoc Task Force

A temporary group formed for the specific purpose of addressing a particular issue or problem.

Autocratic

A leadership or governance style characterized by individual control over all decisions and little input from group members.

Consultative Leader

A leadership style where the leader seeks the input of their team members before making decisions, emphasizing collaboration and feedback.