Inherent risk is defined as the susceptibility
of an account balance or class of
transactions to error that could be material
assuming that there were no related internal
controls. Of the following conditions, which
one does not increase inherent risk?
a. The board of directors approved a
substantial bonus for the president and
chief executive officer, and also approved
an attractive stock option plan for
themselves.
b. The client has entered into numerous
related party transactions during the
year under audit.
c. Internal control over shipping,
billing, and recording of sales
revenue is weak.
d. The client has lost a major customer
accounting for approximately 30% of
annual revenue.
of an account balance or class of
transactions to error that could be material
assuming that there were no related internal
controls. Of the following conditions, which
one does not increase inherent risk?
a. The board of directors approved a
substantial bonus for the president and
chief executive officer, and also approved
an attractive stock option plan for
themselves.
b. The client has entered into numerous
related party transactions during the
year under audit.
c. Internal control over shipping,
billing, and recording of sales
revenue is weak.
d. The client has lost a major customer
accounting for approximately 30% of
annual revenue.