[Mike J]

Hello all,

I recently received a 74 on Auditing. Now that I’m done throwing things (I kid, I kid…sort of), I am not sure I completely understand the difference between Inherent Risk versus Control Risk. I merely studied the difference between IR/CR (auditor assesses; auditor cannot control) versus DR (auditor accepts; auditor can control).

According to my understanding of the AICPA examples [https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00312.pdf], the main difference between IR and CR is that Inherent Risk can involve external factors. Whereas, CR only involves risks that the internal controls will not catch the error.

To put it another way, am I correct to say: (1) With inherent risk there is no way for the audit client to control or mitigate with proper control activities; (2) with control risk the audit client can control or mitigate with proper control activities [RIPS for Becker folk–Review of others, Info processing, Physical controls, Segregation of duties]; and (3) Detection risk involves what the EXTERNAL AUDITOR can control.

And, if ABC, Co were going to issue an IPO, inherent risk would increase, independent of control risk? The External Auditor would then decrease the Detection Risk he would accept?

Do I have this right?

[Vanessachy]

Hi Mike, I got a 74 as well.
I am glad that you brought up this question, I don't think the book explained enough about it. I agree with you regarding the concept of those three risks. Inherent risk and control risk are independent, auditor cannot change them. Inherent is within the company, like more risky investment. Control risk is the internal control? I am not sure about control risk to be honest. Detection risk can be changed. If control risk and inherent risk increase, detection would decrease which would require more substantive procedure.
To your question, ipo, initial public offering? I think it would def increase inherent risk, but I think the company probably would do something, to decrease the total risk for the company. If they do something to control the effect of IPO, is it going decrease inherent risk or control risk? I am kind of confused,

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Anonymous]

Inherent risk is risk that exists independently of internal control:

“Inherent risk refers to the likelihood of material misstatement of an assertion, assuming no related internal control.”

“Control risk is the likelihood that a material misstatement will not be prevented or detected on a timely basis by internal control.”

An IPO could be an inherent risk if it's subject to fraud, whether or not internal control can prevent/mitigate it.

[Anonymous]

My thought was that an IPO could be an risk because of the increased pressure to show profitability, strong balance sheet, etc. It's kind of a toughie, did you see that popping up as a question?

[Mike J]

Sorry, all. That IPO example may not have been the greatest to use. I was just trying to come up with an example.

Also, yes, Vanessa, not only did I get a 74 on AUD I scored a 74 on BEC. I took BEC, REG, & AUD last window in a last ditch effort to pass before FAR expired. Instead, I essentially traded FAR for REG.

[Vanessachy]

Hi Mike, I also got a 70 for BEC. I am sorry to hear that your Far is going to expire, but don't give it up. One of my friends took far four times to pass, and she is going to take aud the fourth time. If she doesn't pass audit this time, she will loss REG. Don't give it up, you are close and I am sure that we can pass them next time.

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Mike J]

@Vanessachy,

Thanks. I'm trying to stay positive. Best of luck to you, too!

[sarenkas]

HI MIKE!
I know it stinks…. I lost REG because I did not pass AUD…. I will be retaking AUD TOMORROW!! This is a long journey, but if it was an easy one, everyone would do it!!! So keep your head high and DO NOT GIVE UP!!!

FAR 75
BEC 75
REG 81 (EXPIRE 6/30/16) I am so lucky to be able to retake it, uh 🙁
AUD 72, 66 RETAKE 07/02/16

[Author]

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