Question

Due to management bias, which of the following accounts tend to have a higher inherent risk of understatement?

A) Contributed surplus accounts

B) Asset and revenue accounts

C) Equity accounts

D) Liabilities and expense accounts

Answer 1

The correct answer is OPTION A i.e Contributed surplus accounts.

Explanation

Inherent risks always comes from the nature of transactions and somewhat from the improper implementation of internal controls.
Such risks causes the misstatement of financial statements and it also involves management bias in it.

So, it can be said that due to the management bias contributed surplus accounts tends to have a higher inherent risk of understatement.

Other options like :

• Asset and revenue accounts
• Equity accounts
• Liabilities and expense accounts

are not much affected by management bias.