Western Governors University (WGU) ACCT3360 D217 Accounting Information Systems Practice Exam

Control risk pertains to the chance that a company's internal controls will not be effective in preventing or detecting material misstatements in financial reports. Essentially, it reflects the vulnerability of financial reporting to irregularities, including errors or fraud, that internal controls are supposed to mitigate. A high level of control risk indicates that there may be significant deficiencies in the internal controls, leading to a greater chance that material misstatements might go unnoticed by the auditors.

In the context of auditing, understanding control risk helps auditors determine the nature, timing, and extent of their procedures. If control risk is assessed as high, auditors may need to perform more substantive testing to ensure the accuracy of financial statements.

The other options relate to different aspects of auditing and risks but do not accurately define control risk. For example, the likelihood of fraudulent financial statements is more aligned with fraud risk, while assessing financial statement accuracy pertains to overall auditing objectives rather than controls specifically. The risk of material misstatements due to external factors is often categorized under inherent risk rather than control risk.