An auditor is assessing the risk of material misstatement for a manufacturing client. The auditor notes that the industry is experiencing rapid technological obsolescence. This factor primarily increases which type of risk?

Answer options:

Control Risk.

Detection Risk.

Inherent Risk.

Audit Risk.

How to approach this question

Identify the source of the risk. Is it external/nature of account (Inherent) or a failure of client systems (Control)?

Full Answer

C.Inherent Risk.✓ Correct

Technological obsolescence is an external factor that affects the valuation of inventory. This susceptibility exists independently of internal controls, making it an Inherent Risk.

Common mistakes

Confusing Inherent and Control risk.

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