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Created by
Dee Zajac, last updated on Jul 03, 2024
2 minute read
| Inherent Risk Impact | ||
Inherent Risk is the susceptibility of a financial process to misstatement, without consideration of any compensating internal controls. | ||
Definition | ||
Involves complex calculations, significant judgment, use of estimates, potential future uncertainty , assets susceptible to misappropriation, or management incentive to misstate financial reporting. | ||
Involves relatively simple calculations, minimal judgment, and a limited risk of misappropriation of assets or financial misstatement. | ||
Involves little to know professional judgement or estimates, and consists of specific transaction prices which are not subject to potential uncertainty. | ||
Control Effectiveness
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Control Effectiveness represents how effective the current internal controls in place within a financial process are expected to be in preventing a financial misstatement from taking place or detecting it in a timely manner. | ||
Scale | Definition | Factor |
High | There are highly effective processes currently in place to mitigate the risk of potential errors, and no issues have been noted during the past three years. | 0.4 |
Moderate | There are processes in place to address potential errors, but there have been one or more issues noted within the past three years. | 0.6 |
Low | There are no processes currently in place to specifically address potential errors within the transaction cycle. | 0.9 |
Risk Likelihood
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Control Effectiveness represents how effective the current internal controls in place within a financial process are expected to be in preventing a financial misstatement from taking place or detecting it in a timely manner. | ||
Scale | Definition | Factor |
High | There are highly effective processes currently in place to mitigate the risk of potential errors, and no issues have been noted during the past three years. | 0.4 |
Moderate | There are processes in place to address potential errors, but there have been one or more issues noted within the past three years. | 0.6 |
Low | There are no processes currently in place to specifically address potential errors within the transaction cycle. | 0.9 |