Question

When are inherent risks in an investment evaluated in the financial statement analysis framework?

A) Inherent risks are irrelevant
B) Inherent risks are not evaluated in financial statement analysis
C) Inherent risks are evaluated at the beginning of the financial statement analysis framework
D) Inherent risks are evaluated at the end of the financial statement analysis framework.

Answer 1

Inherent risks in an investment are evaluated at the beginning of the financial statement analysis framework.

Step-by-step explanation:

The correct option is C) Inherent risks are evaluated at the beginning of the financial statement analysis framework.

Inherent risks in an investment refer to the risks that are inherent to the nature of the investment itself, such as market volatility or industry-specific risks. Evaluating inherent risks is an important part of financial statement analysis as it helps investors assess the potential risks and rewards associated with an investment.

By evaluating inherent risks at the beginning of the financial statement analysis framework, investors can make better-informed decisions about whether to invest in a particular asset or not, based on their risk tolerance and investment objectives.