Control Risk

In finance, the term control risk refers to the risk of incorrect financial statements going undetected and being published in spite of preventative measures.

Incorrect statements typically occur as a result of accounting errors, although they may in some cases occur as the result of deliberate misinformation provided by company management.

Because key information released by corporations (in their annual general meetings, for example) can have serious impacts on the value of their stock, preventing control risk is vital to protecting investors.

Releasing incorrect information can result in arbitration by exchanges or even in legal action by authorities. It may also result in investors losing faith in a corporation. Misinformation resulting from accounting errors can have serious repercussions for accounting firms.

For all of these reasons, corporations and accounting firms typically put measures in place to prevent control risk.

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