Auditing

AccountingAdvanced Level

10 flashcards

Card 1 of 1010%

Question

How do auditors assess the risk of material misstatement in financial statements?

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Answer

Definition

Auditors evaluate both inherent risk and control risk to determine how likely financial statements are to contain significant errors.

Example

For instance, if a company operates in a volatile market, the inherent risk of misstatement may be higher due to unpredictable revenue.

Quick Tip

Remember: Risk = Inherent + Control

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