Control risk is the risk that a material misstatement could occur in the financial statements, and that an error will not be prevented or detected on a timely basis by the entity's internal control.
Control risk is a component of Risk of Material Misstatements(RMM).
Example:
Adequate Disclosure, Inc. plans to perform an audit of Inadequate Disclosure and assesses the internal control. According to the staff auditors, the detection risk is measured to be 9% while the inherent risk is measured at 3%. For the auditors to issue an unqualified opinion, audit risk should be no higher than 16%. What is the value of the control risk that will allow an auditor to issue an unqualified opinion?
Answer: Control Risk + 3% + 9% = 16%
- Control Risk = 4%