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:

Trading Partner

A country or entity with which another country engages in the exchange of goods and services.

European Monetary Union

An agreement among European Union member countries to use a single currency, the euro, and to coordinate their monetary policies.

Highly Productive Economies

Economies that are able to produce a significant amount of goods and services per unit of input.

Specialization

The process of focusing on and becoming an expert in a particular area of work or study, leading to improved efficiency and productivity.