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+--- Thread: Inherent Risk plz help (/showthread.php?tid=2999)
Inherent Risk plz help - fatima ca - 03-09-2006
hi
i need help on inherent risk.
[?]"inherent risk the susceptibility of an assertion to misstatement assuming that there is no related controls"
i m confuse that y? it is said that there is no related control? what does it mean by?
plz any body help me?[)]
hmm
- Ali Akbar - 03-09-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by fatima ca</i>
<br />hi
i need help on inherent risk.
[?]"inherent risk the susceptibility of an assertion to misstatement assuming that there is no related controls"
i m confuse that y? it is said that there is no related control? what does it mean by?
plz any body help me?[)]
hmm
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Becouse had there been related control, this risk would have fallen into control risk. As the control risk is separately defined,explaining the loopholes of related controls.
ICAPians, the unparalleled..
- Ali Akbar - 03-09-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Ali Akbar</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by fatima ca</i>
<br />hi
i need help on inherent risk.
[?]"inherent risk the susceptibility of an assertion to misstatement assuming that there is no related controls"
i m confuse that y? it is said that there is no related control? what does it mean by?
plz any body help me?[)]
hmm
And the main objective of saying "assuming that there is no related control" is to distinguish between control risk and inherent risk, so should not b confused.
ICAPians, the unparalleled..
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Becouse had there been related control, this risk would have fallen into control risk. As the control risk is separately defined,explaining the loopholes of related controls.
ICAPians, the unparalleled..
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
And the main objective of saying that "assuming that there is no related control" is to distinguish b/w inherent and control risk. So should not b confused.
ICAPians, the unparalleled..
- fatima ca - 03-09-2006
Ali plz explain that y? inherent risk is observed by the auditors in more detail. i m not that intelligent plz explain me.[(] control risk and detection risk is understandable but y we have to observe Interent risk.plz plz
hmm
- Ali Akbar - 03-10-2006
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by fatima ca</i>
<br />Ali plz explain that y? inherent risk is observed by the auditors in more detail. i m not that intelligent plz explain me.[(] control risk and detection risk is understandable but y we have to observe Interent risk.plz plz
hmm
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Following illustrations of different industries will help you to understand the crux the of concept.
<b>NGO sector</b>
ABC is an NGO having successfull operations in the country. Under one of their project the donor requires them to utilize the fund by despatching the medicines of some Z disease in a remote areas. So they follow IAS 20 ' Government Grants' and recognize the income to the extent of cost incurred. So, for dispatching the medicines the company has hired employees of local areas having requisite knowledge. So, there is a risk of misstatement or fraud by the employee. A risk that employee gets the medicine costing Rs 10 and sell it in some medical store at 11! Assuming that there is no control of receipt acknowldgement or you can't rely on receipt acknowledgement.
<b>Manufacturing sector</b>
MFC Ltd is a listed company engaged in manufacturing consumer goods and having country wide regional offices/branch offices. They are having large number of employees according to the size of their country wide operations. Auditors have to complete their audit in a limited time. Personal files of employees are maintained at head office and persoanl files of some employees are at their respective regional offices, but they can be called and provided to auditors, moreover, auditors can select any region for their audit. There are total 20 regional offices and auditors have selected 8 regions to audit. So, there is a risk of ghost employees at the unvisited regions. Although personal files are open to auditors but there is inherent risk of dummy employees at regions.
<b>Agriculture sector</b>
Farma Milk Company (FMC) is engaged in producing and selling milk. So, they follow IAS 41 'Agriculture'. IAS 41 states that biological assets should be measured at 'fair value less cost to sell at balance sheet date' (remember fair value less cost to sell may not equal to NRV). So, FMC has measured all its biological assets at fair value less cost to sell at balance sheet date. So, there is inherent risk of misstatement of biological assets, because back dates fair values of biological assets cannot be verified subsequently with ease.
Hope your confusion is reduced and/or cleared.
ICAPians, the unparalleled..
- fatima ca - 03-10-2006
yes thanx my confusion is eliminated
hmm