Explain about inherit risk, control risk . Service organization audit

Question

Accepted Answer

Inherent risk and control risk are two types of risks in service organization audit.

Inherent risk is the risk of material misstatement in the absence of any internal controls.
Control risk is the risk that a material misstatement will not be prevented or detected by the internal controls.
Service organization audit involves assessing these risks to determine the level of assurance needed.
Examples of inherent risks include complex transactions, significant estimates, and related party transactions.
Examples of control risks include ineffective controls, lack of segregation of duties, and inadequate monitoring.
The auditor may need to perform additional procedures or obtain more evidence if the risks are deemed high.
The ultimate goal is to provide reasonable assurance that the financial statements are free from material misstatement.

Top PwC Associate L2 interview questions & answers