Question

one.inherent.risk that would increase.risk of material misstatement to the existence.of accounts receivable

Answer 1

The two types of risks of material misstatements are inherent risk and control risk. Inherent risk is the risk of material misstatements that can occure in the accounts even though the internal control system is functioning properly. Inherent risk for accounts receivable is the risk that accounts receivable can contain material misstatement regardless of internal control in place. An important misstatement that can occure in accounts receivable in relation the existence assertion of accounts receivable is the entry of dummy accounts receivable or fictious sales invoices to manipulate accounts. Other types of misstatements include recording of receivables in the current year that actually occures after the balance sheet date, non recording of allowance for doubtful accounts, uncollectible recevables are not written off and aging shedules are not updated or correctly ascertained.