Inherent risk
Inherent risk is the susceptibility of an assertion about a transaction class, account balance or disclosure to a potentially material misstatement before consideration of related controls. Complexity, uncertainty, subjectivity, change and susceptibility to management bias can affect its assessment.
Worked example
A complex fair-value estimate using unobservable inputs may have higher inherent risk than a straightforward cash balance.
Common mistake
Do not define inherent risk after taking controls into account; control risk is considered separately.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AA | Direct | September 2026–June 2027 |