4 Spooky Inherent Risks

4 SPOOKY inherent risks

Inherent risk is all the bad stuff that could possibly happen when a decision is made to do something. Ask yourself if what you are auditing could result in one of these 4 SPOOKY inherent risks:

1. Death and injury
2. Shame
3. Loss of money
4. Missed goals

Not always about the money

When I went trick-or-treating as a kid, I’d grab the largest goodie bag I could find to fill it with candy. Usually, it was a sturdy pillow case since I was expecting plenty of heavy chocolate and other sweet treats.

But from time to time, a generous neighbor would throw in some loose change or even a $1 bill. And then there was that dentist who passed out floss and toothbrushes. Hmmm.

So, you never know what you will get on Halloween. And you never know what risk you will run into on an audit.

Now most of the time, if you’re a financial auditor, your audit objectives will only focus on loss of money and maybe some shame.

But other audit objectives ignore money and instead focus on possible death and injury. For instance, I once worked with a state auditor who audited a regulatory agency who was supposed to inspect nursing homes for safety. So, their objective centered around death, injury and perhaps shame. Money wasn’t the most important inherent risk for that audit objective.

Inherent risk in a finding

Another way I think about inherent risks is as the ‘effect’ statement in a finding.

The condition statement says, “What’s wrong?” and then the effect statement asks, “So what?”

If the state regulatory body doesn’t inspect the nursing homes (what could go wrong) then death and injury of residents is the inherent risk, the effect and the answer to the question, “So what?”

All tricks and no treats?

Boo! You now have this frightening list of inherent risks; all the terrible things that could possibly happen. Not as good as chocolate, but you’re welcome.

Just leaving the house and driving a car puts us at risk for most of these because risk is a part of everyday life. But, as auditors, we can help our clients mitigate these inherent risks by first making them conscious of the risks and then encouraging them to apply controls.

Mitigate the risks

Now, please put a bright flashlight in your goodie bag this Halloween and keep an eye out for cars! And after you feast on chocolate, make sure to brush and floss.

See how encouraging and helpful auditors can be?

Wishing you a safe and very happy Halloween from your friends at Yellowbook-CPE.com!