Final answer:
Assertions with high inherent risk in business contexts often involve significant potential for loss or misstatement prior to controls being considered. In insurance, they relate to the likelihood of future claims based on past incidents, affecting premiums and leading to problems such as moral hazard and adverse selection. In medicine, they necessitate increased caution and strict protocols.
Step-by-step explanation:
Assertions with high inherent risk involve cases where there is a significant likelihood of a material misstatement occurring in an assertion before considering any related controls. In the context of insurance, for example, this can relate to the classification of individuals into risk groups based on previous incidents such as automobile accidents.
If a person has had a major accident in the past, an insurance company might label them as high-risk, suggesting a likelihood of future similar incidents, and subsequently increase their insurance premiums. High inherent risk is a concern because it can indicate a greater chance of loss or negative outcomes, whether that's in the direct financial impact on investment portfolios or the potential for insurers to incur higher costs due to claims from high-risk policyholders.
The assertion of high inherent risk can lead to significant issues such as moral hazard and adverse selection, which both arise from imperfect information in insurance markets and attempts to categorize those purchasing insurance into risk groups. These issues underscore the challenges and possible detriments associated with assertions that have high inherent risk.
In the medical field, high inherent risk might pertain to lawsuits over liability in negative outcomes from invasive procedures, or to emergency situations where paramedics must treat patients who have high risks for blood-borne illnesses. High inherent risk in these scenarios can lead to increased caution and protocols to minimize the potential for negative outcomes.