ExpertEasy1 markMultiple Choice
CPA · Question 14 · Area II: Risk Assessment
An auditor is assessing the risk of material misstatement for a manufacturing client. The auditor notes that the industry is experiencing rapid technological obsolescence. This factor primarily increases which type of risk?
An auditor is assessing the risk of material misstatement for a manufacturing client. The auditor notes that the industry is experiencing rapid technological obsolescence. This factor primarily increases which type of risk?
Answer options:
A.
Control Risk.
B.
Detection Risk.
C.
Inherent Risk.
D.
Audit Risk.
How to approach this question
Identify the source of the risk. Is it external/nature of account (Inherent) or a failure of client systems (Control)?
Full Answer
C.Inherent Risk.✓ Correct
Inherent Risk.
Technological obsolescence is an external factor that affects the valuation of inventory. This susceptibility exists independently of internal controls, making it an Inherent Risk.
Common mistakes
Confusing Inherent and Control risk.
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