Detection Risk

Detection risk is the risk that the auditor, compliance program, regulator or other authority will fail to find the bodies buried in the backyard until it is too late. Whether it’s the company’s management skimming money out of the company, improperly stated earnings, or any other type of financial shenanigans, the market reckoning will come when the news surfaces.

With detection risk, the damage to the company’s reputation may be difficult to repair; and it’s even possible that the company will never recover if the financial fraud was widespread (Enron, Bre-X Minerals, ZZZZ Best, Crazy Eddie’s, and so on).

Leave a Reply

Your email address will not be published. Required fields are marked *