Chapter 4 Flashcards
(blank) could adversely affect companies ability to acheive objecties and execute strategies
* uncertainties from the businesses environement (economy,competitors, regulators, customers, suppliers, investors, etc) that managers tor try mitigate with controly activities
Business (inherent) Risks
Enterprise Risk Management (ERM) Framework
- Interal Environment
- Objective Setting
- Event Identification
- Risk assessment
- Risk Repsonse
- Control Activities
- Info and communicatino
- Monitoring
Internal Environment
Risk conciousness of the organization
includes risk mgmt philosophy, risk appetite, integrity and ethical values, operating environment
Mgmts repsonsibility to determine goals and objecties of the organization
objective setting
Identification of conditions and events that could adversely affect mgmts objectives
event identification
Systematic process for estimating the likelihood of sdverse conditions occuring
Risk assessment
How organization will prevent or repsond to the adverse conditions if they actually occur
Risk Response
Policies and procedures to ensure that risk repsonses are appropriate given the circumstances nad environment which the organization operates
control activities
(blank) links all components of the ERM
information and communication
Regular mgmt and supervisory activities over risk mgmt activites to make sure they remain in place and operate effectively
Monitoring
The probability that the info distributed by an entity will be materially false and misleading
Information Risk
Deliberate fraud committed by mgmt that injures investors and greditors through materially misstated info
MGMT Fraud
(fraudulent finan reporting)
The probability that in the absence of internal controls, material errors or frauds could enter the acct system used to develop finan statements
Inherent Risk
Probability that the clients internal control activities will fail to prevent or detect material misstatemnts provided they entered the acct system in the first place
Control Risk
Probability that audit procedures will fail to detect material misstatements provided that any entered the acct system in the first place
Detection Risk
Audit Risk Model
AR = IR x CR x DR