[krgraham00]

Quick questions on Audit/Fraud Risk…

In becker it states that Fraud Risk is: The auditor must obtain reasonable assurance about whether the financial statements are free from material misstatement, whether caused by error or fraud.

My questions is, isn’t the “whether caused by error” part of that sentence an inherent risk? I have this overall idea that inherent risk is just the risk that an error occurs because of the competency of staff. Can anyone clarify/confirm?

Thanks in advance.

[Anonymous]

I always thought fraud risk was a component of inherent risk.

https://pcaobus.org/Standards/Auditing/Pages/AU312.aspx

Inherent risk is the susceptibility of an assertion to a material misstatement, assuming that there are no related controls. The risk of such misstatement is greater for some assertions and related balances or classes than for others. For example, complex calculations are more likely to be misstated than simple calculations. ***Cash is more susceptible to theft than an inventory of coal.*** Accounts consisting of amounts derived from accounting estimates pose greater risks than do accounts consisting of relatively routine, factual data. External factors also influence inherent risk. For example, technological developments might make a particular product obsolete, thereby causing inventory to be more susceptible to overstatement. In addition to those factors that are peculiar to a specific assertion for an account balance or a class of transactions, factors that relate to several or all of the balances or classes may influence the inherent risk related to an assertion for a specific balance or class. These latter factors include, for example, a lack of sufficient working capital to continue operations or a declining industry characterized by a large number of business failures.

[Author]

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