 In this presentation we will take a look at inherent risk assessment as it relates to the revenue process. So when we consider inherent risk you'll recall that inherent risk is going to be one of those risk factors we need to consider with regards to internal control. First a word from our sponsor. Well actually these are just items that we picked from the YouTube shopping affiliate program but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched purchased and used ourselves. Acer 27 inch monitor. I've been using an Acer monitor as my primary monitor for a few years now. This is the first Acer monitor that I have used after having used a series of different brands of monitors in the past. The Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor. I have a 27 inch monitor which I think is ideal for what I do which is of course the screen recording and the editing. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accounting instruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model given you access to all the courses. Courses which are well organized have other resources like Excel files and PDF files to download and no commercials. And the assessment of how much substantive testing we will need to do for a particular process. This process of course being the revenue recognition process. I typically think of the inherent risk as the risk that nobody really has any direct control over. It's just inherently risk the inherent risk of the type of thing that we are looking at. It's just in the type of thing we're looking at. So in other words if you were to remove the internal controls the inherent risk is just the inherent risk of that type of thing which is going to be the reason that we put the internal controls in place and will help us to guide what type of internal controls would be in place. Now of course the inherent risk then is something that the auditor doesn't have direct control over. It's something that the business has some control over kind of monitoring by putting in types of internal controls and by choosing what type of business they are in. So in other words of course different types of industries will have different types of inherent risk. So the business has chosen the inherent risk to some degree by choosing the type of business the type of industry that they are involved in then they can mitigate that inherent risk through things like internal controls. So when we consider the inherent risk then we want to think about what is the inherent risk process here so we can think about the effectiveness of the internal controls with relation to mitigating that inherent risk and as a factor to consider how much testing we need to do in terms of substantive testing. So with regards to the revenue recognition process we have factors related to the industry so what type of industry are they in some industries are just more inherently risky with the revenue recognition process and there could be different components within that risk such as you know we might be in a type of industry that has a high degree of non payment of the receivables that just might be the type of industry they are in they might have a high high degree of sales and a high degree of bad debt or something like that we want to know what the inherent risks are related to the factors of the industry that they are in complexity of revenue recognition issues so how complex is the revenue recognition process that we are taking into consideration it's a pretty straightforward type of revenue recognition we if we're in a store and we give the goods and they pay us cash at the same point in time that's a pretty straightforward type of process not too complex if we have accounts receivable involved a bit more complex if we have shipping now involved a bit more complex if we think if we have things like cash discounts involved that's going to be a bit more complex if we have a lot of returns and allowances types of things again things are starting to get a bit more complex within the revenue recognition process the difficulty and auditing transactions and account balances so how hard is it for us as an auditor to be going through and auditing the actual transactions and the account balances and the misstatements detected in the prior audits so we're going to take a look at the prior audits we're going to look at the number of misstatements that were detected within them and that will give us an indication that if there's a lot of misstatements last year and then we're probably going to say that we want to there's a higher inherent risk involved at this time