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what is the different between inherent risk and control risk

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October 7th 2014 AN ACCA USER 160 Points 1 Flag

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+3 Votes

Inherent risk: The risk which a business / sector of operation inherits. Eg. 1. In cell phone market the pace of advancement of product is so high that the business inherits the risk of suffering loss from new developments which cannot be fully controlled. Investment in derivatives inherits the risk of price change. Inherent risk can be reduced to certain level but cannot be reduced to no risk situation.

Control risk: There exists control procedures to reduce risk in any organizations. When control procedures are not implemented/followed properly control risk exists. E.g. No training and development provided for employees - results lower motivation - can be avoided through training and development , no health and safety instruction provided - results accidents in workplace, - can be avoided through instruction and controlled operation.
Where effective control mechanism are implemented control risk can be reduced to zero risk situation.

October 7th 2014 AN ACCA USER 8,730 Points