Inherent risk means the risk that an error or fraud may happen because of the nature of the business or transaction.
Cash has high inherent risk because it is easy to steal and easy to manipulate.
Inherent risk is higher when there is:
| Situation | Explanation |
|---|---|
| High judgment | Staff may make wrong decisions when recording transactions |
| Estimates | Some cash-related amounts may require estimates |
| Complexity | Large businesses with many branches or subsidiaries may record cash incorrectly |
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