Inherent Rsik

 The proneness of a statement to a significant misrepresentation caused by fraud or error, either

alone or in conjunction with other material misstatements, before taking into account any
related controls.

Material Misstatement Risk

 The risk that an organization’s financial statements have been misstated. Misstatements can be
more likely as a result of such factors including complicated transactions, estimates, and
significant judgments.

Internal Control Risk

 The probability of significant errors in an account’s estimates without taking internal control
procedures into account. The risk is evaluated using a variety of analytical methods, the
information that is known about the company and industry, as well as comprehensive audit
information. The control environment that a company maintains affects its internal controls and
risk management procedures. When the control environment is lax, there is a higher chance of
fraud, errors, and misstatements in the financial statements.

Audit Risk Represents

 the possibility that an auditor will fail to provide an appropriate audit opinion when the financial
statements are materially misstated and will fail to adjust his or her report to reflect any such
major misstatement.

Going Concern and Liquidity Risks

 The ability of a company to continue as a going concern and meet its short- and long-term
obligations is crucial for auditors. They need to evaluate management’s assessment of going
concern, assess liquidity risks, and consider any events or conditions that may cast doubt on the
company’s ability to operate as a going concern