Audit and Assurance Practice Exam 2025 – Complete Prep Resource

Control risk refers to the risk that a material misstatement in the financial statements will not be prevented or detected in a timely manner by the entity’s internal controls. This concept is integral to the audit process, as it emphasizes the effectiveness of internal controls in mitigating risks associated with material misstatements, whether due to fraud or error.

When auditors assess control risk, they evaluate the design and implementation of internal controls to determine how likely it is that a misstatement could go unnoticed. A higher control risk indicates that there are weaknesses in the controls or that the controls are not functioning properly, which requires the auditor to adjust their testing and reliance on those controls.

In contrast, the other options present different types of risks or concerns that do not specifically relate to the effectiveness of internal controls in detecting or preventing misstatements. The first option addresses operational risks, which are not tied to financial reporting processes. The third option focuses on manual errors, which could be a component of control risks but does not capture the broader definition involving internal control effectiveness. The fourth option relates to audit processes rather than control risk itself and does not pertain to the risk of misstatements in financial reports. Thus, option B accurately encapsulates the definition of control risk relevant to auditing