Question

In auditing, which accounts/assertions will have the highest inherent risk for a food and beverage company? Please provide examples and explanation.

Answer 1

Inherent Risk- It happens due to error or omission or wrong entry of the financial business transactions. This arises because of complexity of some accounting rules and transactions.

There are five audit assertions as far as Food & beverages company is concerned:

1. Existence
2. Completeness
3. Accuracy
4. Rights & Obligation
5. Presentation & Disclosure

Accuracy will be more affected by inherent risk. Inherent risk, if arises one time, it affects the following records and transactions. Due to change in tax policies or revenue recognition standards, there may be some accounting errors that may not present the accurate figures. So financial reports may be less accurate due to the inherent risk.