Complexity, uncertainty, subjectivity, change and susceptibility to fraud increase inherent risk. Provisions with high estimation uncertainty, for example, carry higher inherent risk than routine sales transactions.
Source: BDS 200, BDS 315
Related terms
Risk of material misstatementThe risk that the financial statements are materially misstated, due to error or fraud, before the audit; it consists of inherent risk and control risk.Control riskThe risk that a material misstatement will not be prevented, or detected and corrected, on a timely basis by the entity's internal control.Accounting estimatesThe determination by management judgement of amounts that cannot be measured precisely, such as provisions, useful lives, expected credit losses and fair values.Adverse opinionThe opinion in which the auditor states that the financial statements are not presented fairly, where misstatements are both material and pervasive.Agreed-upon proceduresAn engagement in which the practitioner performs procedures agreed with the entity and, where relevant, a third party, and reports only the findings without providing assurance.Analytical proceduresThe evaluation of financial information through analysis of plausible relationships among financial and non-financial data.
Last updated: October 31, 2026 · This definition is for general information only.