What is the typical consequence of price risk?

The consequence of price risk is a reduction in asset value. Price risk refers to the potential for financial loss due to fluctuations in the market prices of assets, including stocks, bonds, real estate, and commodities. When the market experiences volatility, the value of these assets can decrease significantly, leading to potential losses for investors or companies holding those assets.

This reduction in asset value can have various ripple effects on financial statements and the overall financial health of an organization. It may impact balance sheets, reduce equity, and affect investors’ perceptions and decisions related to the asset. Understanding price risk is crucial for financial auditors because it helps in assessing the financial stability and risk management practices of an organization.

In contrast to the other options: increased regulatory scrutiny usually arises from compliance failures or governance issues rather than price fluctuations alone; higher interest rates are typically influenced by monetary policy rather than directly caused by price risk; and increased demand for products generally indicates a healthy market scenario, which may not relate directly to the concept of price risk.