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2 years ago

describe why accounts involving significant management estimation are generally viewed as inherently risky

Business

1 answer:

Sladkaya [172]2 years ago

7 0

Accounting estimates are necessary when:

1. the measurement of some amounts or the valuation of some accounts is unknown pending the result of future events; or

2. relevant data regarding events that have already occurred cannot be gathered on a timely, cost-effective manner.

The danger of incorrect or deceptive information appearing in financial statements that has occurred for causes other than the failure of controls is known as inherent risk in the practice of accounting. When using complicated financial instruments or issuing profit predictions for next quarters, these situations frequently occur.

The probability of making mistakes while conducting an audit might be considered in connection with inherent risk. Audit risk also involves control risk and detection risk in addition to inherent risk.

To know more about inherent risk click here:

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