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7 Cards in this Set
- Front
- Back
Define Risk
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Exposure to circumstances that may increase the likelihood of loss.
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What is the formula for Risk?
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Risk= P(t) * P(f) * (Amount of Loss)
P(t)= Probability of a Threat P(f)= Probability of Conrtol Failure |
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3 ways to minimize risks
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1. Prevent threats from occuring
2. increase systems controls 3. Reduce loss (insurance) |
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Inherent Risk
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material misstatement when there are no controls.
probablility of fraud. unitentional errors relating to employee competence. |
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2 cornerstones to effective internal control
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Employee Competence
Employee Integrity |
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Control Risk
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Likelihood misstatements will not be prevented or detected by internal controls
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Detection Risk (planned detection risk)
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the audit will not catch the misstatements.
The risk the auditor is willing to take thant and erroe or fraud goes undetected by audit procedures. |