Question

Discuss the inherent risk assessment of the following items and explain why the auditor asses these inherent risks as high or low:

- Inherent Risk Assessment – Prepaid Expenses   [1.25 marks]

- Inherent Risk Assessment – Intangible Assets   [1.25 mark

Answer 1

Inherent Risk Assessment – Prepaid Expenses;

Auditor assess inherent risks as low in case of prepaid expenses because prepaid expenses do not involve much complexities or contentious with reference to prepaid expenses and there are less complex accounting issues associated with prepaid expenses that is why auditor assess inherent risk as low.

Inherent Risk Assessment – Intangible Assets;

Auditor assess inherent risks as high in case of intangible assets because there are various complexity associated with valuation and estimation of intangible assets. That is why auditor will assess the inherent risk as high in case of intangible assets.