A-Z Popular Blog Encyclopedia Search »
Investing
Simplicable Guide
A-Z
Search
Popular
Sitemap
Advertisements
Related Guides
Investing
top   »  risk   »  business risks   »  financial risk   »  inherent risk

What is an Inherent Risk?

 , April 11, 2017 updated on December 29, 2022
Inherent risk is the potential that a firm has a material misstatement in its financial statements. This is a financial auditing term that refers to errors, omissions or fraud in accounting. It is difficult for outsiders to assess inherent risk. Individual investors depend on a firm's independent auditors to reduce inherent risk by confirming facts and judgements in a firm's accounting.

Example

An investor purchases a stock because she is impressed by recent earnings and the firm's lack of debt. It is later revealed that the firm has massive and unsustainable debt loads hidden in various subsidiaries that is backed by the firm's assets. The stock collapses in price on the news.
Overview: Inherent Risk
TypeFinancial Risk
DefinitionThe potential that a firm has a material misstatement in its financial statements.
Related ConceptsFinancial Risk
Investing Risk
Bankability
Concentration Risk

Thinking

This is the complete list of articles we have written about thinking.
Abductive Reasoning
Abstract Thinking
Abstraction
Aesthetics
Analogy
Analysis Paralysis
Analytical Thinking
Anomie
Argument From Silence
Arrow Of Time
Assertions
Automaticity
Backward Induction
Base Rate Fallacy
Benefit Of Doubt
Big Picture
Brainstorming
Call To Action
Catch 22
Causality
Choice Architecture
Circular Reasoning
Cognition
Cognitive Abilities
Cognitive Biases
Cold Logic
Collective Intelligence
Complexity Bias
Concept
Consciousness
Constructive Criticism
Convergent Thinking
Counterfactual Thinking
Creative Tension
Creeping Normality
Critical Thinking
Culture
Curse Of Knowledge
Decision Fatigue
Decision Framing
Decision Making
Design Thinking
Divergent Thinking
Educated Guess
Emotional Intelligence
Epic Meaning
Essential Complexity
Excluded Middle
Failure Of Imagination
Fallacies
Fallacy Fallacy
False Analogy
False Balance
False Dichotomy
False Equivalence
First Principles
Formal Logic
Four Causes
Fuzzy Logic
Generalization
Golden Hammer
Good Judgement
Grey Area
Groupthink
Heuristics
Hindsight Bias
Hope
Idealism
Ideas
If-By-Whiskey
Imagination
Independent Thinking
Inference
Influencing
Informal Logic
Information
Information Cascade
Introspection
Intuition
Inventive Step
Learning
Lifestyle
Logic
Logical Argument
Logical Thinking
Ludic Fallacy
Magical Thinking
Meaning
Mental Experiences
Mental State
Mindset
Misuse of Statistics
Natural Language
Nirvana Fallacy
Norms
Objective Reason
Objectivity
Opinion
Overthinking
Perception
Personal Values
Perspective
Positive Thinking
Practical Thinking
Pragmatism
Problem Solving
Proof By Example
Propositional Logic
Prosecutor's Fallacy
Radical Chic
Rational Thought
Realism
Reality
Reason
Reasoning
Red Herring
Reflective Thinking
Relativism
Salience
Scarcity Mindset
Scientism
Selective Attention
Serendipity
Situational Awareness
Sour Grapes
State Of Mind
Storytelling
Subjectivity
Systems Thinking
Thinking
Thought Experiment
Unknown Unknowns
Visual Thinking
Want To Believe
Whataboutism
Win-Win Thinking
Wishful Thinking
Worldview
If you enjoyed this page, please consider bookmarking Simplicable.
 
Cite »

Financial Risk

A list of common types of financial risk.

Cost Overrun

The primary types of cost overrun.

Revenue Risk

A definition of revenue risk with common examples.

Risk Capacity

An overview of risk capacity with examples.

Enterprise Risk

A list of common enterprise risks.

Audit Risk

The definition of audit risk with examples.

Recession Definition

A few definitions of recession.

Risk Meaning

The meaning of risk with examples.

Risk Management

An overview of the risk management process.

Cascading Failure vs Resilience

An overview of cascading failure and resilience.

Business As Usual

An overview of business as usual.

Risk Mitigation

A list of techniques for reducing risk.

Risk Mitigation vs Risk Reduction

The difference between risk mitigation and risk reduction.

Risk Control

A list of common risk controls.

Risk Value

A definition of risk value with example calculation.

Risk Impact

The common types of risk impact.

Risk Communication

A definition of risk communication with examples.

Risk Management Process

Overview of the steps in a risk management process.

Trending

The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map
Accountability
Business
Business Analysis
Business Continuity
Business Risks
Change Management
Competency Management
Compliance
Crisis Management
Economics
Goals
Governance
Information Technology
Knowledge Management
Management
Metrics
Objectives
Operations Management
Organizational Culture
Planning
Project Management
Quality Assurance
Risk
More ...
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.

View credits & copyrights or citation information for this page.

About     Privacy Policy     Cookies Terms of Use     Contact Us


Cookies help us deliver our services. You have choices regarding these cookies. Please visit our privacy policy, cookie policy and consent tool to learn more.


Copyright 2002-2023 Simplicable. All rights reserved. This material may not be published, broadcast, rewritten, redistributed or translated. Report violations here.