[jackaroe]

Q. Does entering a risky transaction (such as buying CDOs from a shaky dealer for the first time) affect CR?

It increases Inherent Risk (which affects RMM) which causes detection risk to decrease (which leads to conducting more substantive tests). AR doesn’t change. I understand that inherent risk is to be evaluated separately from control risk as it evaluates a situation as if the situation bore no controls.

A. Yes or No. Would this new transaction increase CR? The question seems geared towards the beta/market/external risk as opposed to the the ‘risk assessment’ component of internal control and the first time that this type of transaction is processed.