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Inherent Risk and Control Risk for Purchasing [Video]

Inherent Risk and Control Risk for Purchasing

After identifying the significant accounts and relevant assertions, the auditor should assess the risk of material misstatement.

The auditor thus needs to:
• Assess inherent risk for accounts payable, as well as for purchase transactions and cash disbursement transactions
• Assess control risk for accounts payable, as well as for purchase transactions and cash disbursement transactions

Once the auditor knows both the inherent risk and the control risk for accounts payable and purchasing and cash disbursement transactions, the auditor knows the risk of material misstatement (RMM).

A high RMM means the auditors will need to set detection risk lower to achieve an acceptable level of audit risk.

0:00 Introduction
0:36 Inherent risk
2:42 Control risk
5:38 Risk of material misstatement
7:00 RMM and detection risk
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