When inherent risk is high, what is required concerning audit risk?

When inherent risk is high, a higher level of evidence accumulation is necessary in the audit process. Inherent risk refers to the susceptibility of an entity's financial statements to material misstatements due to factors like the nature of the business, the complexity of transactions, or economic conditions, without considering the effectiveness of internal controls.

When inherent risk increases, the likelihood of material misstatements also increases, which prompts auditors to gather more substantial evidence to ensure that the financial statements are free from material misstatement. This higher level of evidence is crucial because it helps the auditor to adequately address the elevated risk of error and provide a reasonable assurance regarding the fairness of the presented financial statements.

This response to high inherent risk contrasts with other potential actions, such as adjusting control risk or audit risk, which do not comprehensively address the necessity for evidence when inherent risk is significant. Therefore, accumulating a greater volume of evidence is essential to mitigate the risk posed by high inherent risk, confirming that the auditor has enough information to make reliable conclusions about the financial statements' integrity.