AAA – L3 – SA – Q4.6 – Audit evidence

Which factors contribute to inherent risk in an audit?

Question

Which of the following may be factors contributing to inherent risk?

1 Number of customers

2 Strength of internal controls

3 Number of products

4 Rate of staff turnover

A 1,2 and 3 only

B 1,3 and 4 only

C 2,3 and 4 only

D 1,2 and 4 only

Answer

Explanation: Inherent risk is the risk of material misstatement due to factors inherent in the business, absent internal controls. The number of customers (1), number of products (3), and rate of staff turnover (4) can increase complexity and risk, contributing to inherent risk. Strength of internal controls (2) affects control risk, not inherent risk, so it is excluded. Thus, option B (1,3, and 4) is correct.

Tags: Customers, Inherent Risk, Internal controls, Products, Risk Assessment, Staff turnover
Level: Level 3

Topic: Audit Evidence

Uploader: Salamat Hamid