Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent?
A. Detection risk.
B. Event risk.
C. Residual risk.
D. Inherent risk.
Answer:C
Choice "C" is correct. Residual risk is defined as the risk that an organization incurs after management takes whatever actions are needed to mitigate the adverse impact of a given event.
Choice "D" is incorrect. There is no indication in the facts of the question that this director failed to use prudent business judgment.
Choice "B" is incorrect. Event risk is the risk that an unexpected (and infrequent) event will occur that will have an adverse impact on an organization. Choice "A" is incorrect. Detection risk is the risk that the procedures established by an auditor to detect material misstatements in a company's financial statements will fail to detect a material misstatement.