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Inherent Risk and Misstatements

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State two inherent risk factors that might motivate management to deliberately misstate revenues and receivables and two factors that might cause unintentional misstatements.

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Inherent risk is the risk that a portion of audited financials are materially misstated assuming internal control procedures do not in place to prevent the risk.

Two inherent risk factors that might motivate management to deliberately misstate revenues and receivable include:
1) Motivation to ...

Solution Summary

Inherent risk is the risk that a portion of audited financials are materially misstated assuming internal control procedures do not in place to prevent the risk. The solution states two inherent risk factors that might motivate management to deliberately misstate revenues and receivables and two factors that might cause unintentional misstatements.

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Financial Statements and Material Misstatement

Required: At this stage, the auditor obtains an understanding of the entity and its environment to anticipate account balances and assertions that are likely to be misstated. Outline the important aspects of understanding Mt. Hood Furniture and its external environment. Discuss the key issues that are present in the Mt. Hood case.

I need to complete a table. For each of the items listed below, I need to discuss 1) how the knowledge will assist in developing a knowledgeable perspective about the financial statements and 2) how the knowledge increases or mitigates potential risks of material misstatement.

a. Industry conditions
b. Regulatory environment
c. Other external factors affecting the business
d. The client's business operations
e. The client's investing activities and financing activities
f. The client's financial reporting activities

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