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Sample Slingers Corporation: Is inherent risk zero?

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You are the auditor for Sample Slingers Corporation, a publicly traded company in the business of providing staff to hand out merchandise samples at large discount stores like Costco, Sam's, and Wal-Mart. You have participated in the audit of Sample Slingers for five years. In those five years, you have never seen an accounting adjustment recommended. Taking into consideration the audit risk model and professional standards, would you be reasonable in believing that inherent risk must therefore be zero? Why or why not?

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Your discussion is 252 words and explains that inherent risk is not zero and why.

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No, the inherent risk is not zero. Inherent risk is not the risk that an adjusting entry will be needed to achieve GAAP reporting. Given that an audit adjustment has never been made, the CONTROLS are probably working pretty good. That is, the controls prevent or detect errors in the financial records. Control risk is low (but not zero because even good controls can be ineffective because ...

Solution provided by:
Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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