Inherent risk is the susceptibility of an assertion to a material misstatement, assuming there are no related internal controls. The question describes a situation where the subject matter itself—the complex calculations mandated by the Federal Credit Reform Act—is intrinsically prone to errors. This complexity exists independently of any controls an agency might implement or any audit procedures performed. Therefore, the likelihood of errors due to the nature of the calculations is a direct example of inherent risk.

A. audit risk: This is the overall risk that an auditor will issue an incorrect opinion; it is a function of inherent, control, and detection risks, not the specific risk described.

B. control risk: This is the risk that an entity's internal controls will fail to prevent or detect a misstatement, which is not the focus of the question's premise.

C. detection risk: This is the risk that the auditor's procedures will fail to detect a misstatement that exists; it relates to the audit process, not the nature of the transaction itself.

1. U.S. Government Accountability Office (GAO). (2018). Government Auditing Standards (GAO-18-568G). Section 6.13 defines the components of audit risk. It states, "Inherent risk is the susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be material... before consideration of any related controls." It further identifies complexity as a key factor influencing inherent risk.

2. AICPA Auditing Standards Board. (2021). AU-C Section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards. Paragraph .A41 explains that inherent risk is higher for some assertions and related classes of transactions, such as those involving complex calculations.

3. Office of Management and Budget (OMB). (2023). Circular A-136, Financial Reporting Requirements. Section II.4.7, "Credit Reform," details the complex accounting and reporting requirements for federal credit programs, including the need for sophisticated models to estimate subsidy costs, which substantiates the premise that these calculations are inherently complex and susceptible to error.