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Governance, Risk, Audit & Privacy · Intermediate

Inherent Risk

Level of risk before any controls or treatments are applied.

Definition

Inherent risk reflects the natural exposure of an activity, asset, or process in the absence of mitigating controls. Comparing inherent and residual risk shows control effectiveness. Auditors use inherent risk to plan the nature and extent of testing.

Example

Processing wire transfers has high inherent fraud risk before dual approval is implemented.

Exam tip

In audit risk, inherent risk is the susceptibility to material error assuming no related controls.

Don't confuse it with

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