You work as a Network Auditor for Net Perfect Inc. The company has a Windows-based network. While auditing the company's network, you are facing problems in searching the faults and other entities that belong to it. Which of the following risks may occur due to the existence of these problems?
- Residual risk
- Secondary risk
- Detection risk
- Inherent risk
Detection risks are the risks that an auditor will not be able to find what they are looking to detect. Hence, it becomes tedious to report negative results when material conditions (faults) actually exist. Detection risk includes two types of risk: Sampling risk: This risk occurs when an auditor falsely accepts or erroneously rejects an audit sample. Nonsampling risk: This risk occurs when an auditor fails to detect a condition because of not applying the appropriate procedure or using procedures inconsistent with the audit objectives (detection faults). Answer A is incorrect. Residual risk is the risk or danger of an action or an event, a method or a (technical) process that, although being abreast with science, still conceives these dangers, even if all theoretically possible safety measures would be applied (scientifically conceivable measures). The formula to calculate residual risk is (inherent risk) x (control risk) where inherent risk is (threats vulnerability). In the economic context, residual means "the quantity left over at the end of a process; a remainder". Answer D is incorrect. Inherent risk, in auditing, is the risk that the account or section being audited is materially misstated without considering internal controls due to error or fraud. The assessment of inherent risk depends on the professional judgment of the auditor, and it is done after assessing the business environment of the entity being audited. Answer B is incorrect. A secondary risk is a risk that arises as a straight consequence of implementing a risk response. The secondary risk is an outcome of dealing with the original risk. Secondary risks are not as rigorous or important as primary risks, but can turn out to be so if not estimated and planned properly.