Week 3 - Inherent Risk

Question 1

What is inherent risk?

Answer 1

Like business risk - risks which derive from the nature of the entity itself, its business and the commercial environment in which it operates (e.g complex transactions)

Question 2

What are the first 3 inherent risk examples?

Answer 2

• trading history and cash position of business
• nature of entity’s operations
• market levels i.e demand and competition

Question 3

What are the other 3 inherent risk examples?

Answer 3

• the quality and experience of management
• the complexity of their transactions
• judgements required over specific transactions