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1) Four of the factors the auditor should consider when assessing inherent risk are: the nature of the client’s business, results of previous audits, related parties, and non-routine transactions. Inherent risk for certain accounts is affected by the nature of the client’s business. For accounts such as cash, mortgage payable, or notes the nature of the client’s business has little or no effect on inherent risk. The nature of the client’s business will cause some variety in inherent risk is accounts such as accounts receivable, fixed assets, and inventory. By looking at the previous years audit the auditor will have a better assessment of inherent risk. This is because misstatements that are found in a previous audit have a more likelihood of occurring in the current audit. Most organizations are slow to correct any misstatements because many of them are systemic in nature. In dealing with related parties the audit realizes that transactions between these par...

Posted by: Sean Wilson

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