Inherent risk, in
risk management
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
, is an assessed level of raw or untreated
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
; that is, the natural level of risk inherent in a process or activity without doing anything to reduce the likelihood or mitigate the severity of a mishap, or the amount of risk before the application of the risk reduction effects of controls. Another definition is that inherent risk is the current risk level given the existing set of controls, which may be incomplete or less than ideal, rather than an absence of any controls.
Strategic Risk involves risks that affect the organization’s ability to achieve its goals and objectives. Inherent strategic risks could stem from changes in the business environment, competitive pressures, or shifts in consumer preferences.
Operational Risk are risks associated with the day-to-day operations of an organization. Inherent operational risks can arise from internal processes, people, systems, or external events that disrupt operations.
Financial Risk includes risks related to the financial health and stability of an organization. Inherent financial risks might involve market fluctuations, credit risks, liquidity issues, and investment uncertainties.
Compliance Risk are related to adherence to laws, regulations, and policies. Inherent compliance risks occur when regulatory landscapes change or when new regulations are introduced.
Reputational Risk pertains to risks that affect the public perception and image of an organization. Inherent reputational risks can be triggered by negative publicity, social media activity, or other factors that impact public opinion.
Inherent risk is contrasted with
residual risk, which is the amount of risk left after treatment and added security measures.
See also
*
Inherent risk (accounting) Inherent risk, in a financial audit, measures the auditor's assessment at the assertion level of the likelihood that there are material misstatements, either individually or in aggregate, due to error or fraud in a class of transactions, account ba ...
, particularly, the consideration of the probability of material misstatements in financial records
References
Risk_management
Auditing terms
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