What Is the Risk of Material Misstatement?

Answer:

The risk that the financial statements are materially misstated prior to audit. This consists of two components, described as follows at the assertion level:

• Inherent risk — The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.

• Control risk — The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.