Final answer:
Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls.
Step-by-step explanation:
Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related controls.
This means that inherent risk exists regardless of the presence or effectiveness of controls designed to prevent or detect material misstatements.
For example, if a company has a high inherent risk in its inventory valuation due to the nature of the industry it operates in, the risk is still present even if the company has strong internal controls in place.