Inherent Risk

Inherent risk is the risk that a financial assertion is susceptible to a

material misstatement. The assertion could be about a class of transactions,
account balances or disclosures about significant company events. Examples
include double counting sales, incorrectly valuing inventory for cost of goods
calculations and failing to disclose significant accounting changes.

Control Risk

Control risk is the risk that one or more material misstatements might
not be prevented or detected on a timely basis by the organizations internal
control systems. For example, if the revenue is misstated on a company's
income statement, control risk means that the company's internal auditing
processes will not be able to catch it before the financial statements are
published.

Detection Risk

Detection risk is the risk that an audit might not be able to detect a
material misstatement. For example, if there are revenue or cost
misstatements on a company's income statement, detection risk refers to
the possibility that an audit fails to detect these misstatements and,
consequently, expresses an inappropriate favorable opinion.

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