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7 Cards in this Set

  • Front
  • Back
Define Risk
Exposure to circumstances that may increase the likelihood of loss.
What is the formula for Risk?
Risk= P(t) * P(f) * (Amount of Loss)

P(t)= Probability of a Threat
P(f)= Probability of Conrtol Failure
3 ways to minimize risks
1. Prevent threats from occuring

2. increase systems controls

3. Reduce loss (insurance)
Inherent Risk
material misstatement when there are no controls.

probablility of fraud.

unitentional errors relating to employee competence.
2 cornerstones to effective internal control
Employee Competence

Employee Integrity
Control Risk
Likelihood misstatements will not be prevented or detected by internal controls
Detection Risk (planned detection risk)
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.