Inherent Risk. Consider the following factors:

1 Integrity of management 2 Organization and management structure 3 Nature of the entity’s business 4 Industry factors 5 Financial statement accounts susceptible to misstatement 6 Complexity of underlying transactions 7 Degree of judgement involved in determining account balances.

8 Susceptibility of assets to loss or misappropriation 9 Completion of unusual and complex transactions 10 Transactions not subjected to ordinary processing.

Required

For each of the ten factors, discuss the circumstances that would (1) increase inherent risk (2) decrease inherent risk and (3) leave inherent risk unchanged.

Use the following format for your answer:

Transcribed Image Text:

Factor Increase Risk Decrease Risk Integrity of management. The vice president was arrested for mail fraud 10 years ago. Management has an industry reputation of ethical conduct. Risk Unchanged Management has ethics typical of the industry.