Define inherent risk and residual risk. Which of the two types of risk should have a greater impact on the annual internal audit plan?
An inherent risk in auditing is the risk that there are misstatements present on the financial statements without considering the internal controls that are in place. As an auditor, if I am informed that I need to audit a restaurant, which deals with large volumes of cash, the inherent risk would be knowing that fraud could be present without knowing ...
This solution explains inherent risk and residual risk. I also explain which of the two types of risk should have a greater impact on the internal audit plan.