Which concept refers to the potential for loss resulting from an action or decision?

The concept that refers to the potential for loss resulting from an action or decision is risk. In auditing and financial management, risk encompasses uncertainties that can lead to financial loss or impact a project's success. It involves evaluating the likelihood of an adverse event occurring and its potential impact on objectives.

Understanding risk is crucial for auditors, as it influences their approach to assessments and evaluations. Identifying and managing risks allows organizations to make informed decisions that can mitigate potential losses. By analyzing risk, auditors can develop strategies to minimize its effects, ensuring better outcomes and compliance with regulations.

Liability, equity, and asset are related financial terms but do not specifically capture the essence of potential loss due to an action or decision in the same way that risk does. Liability relates to obligations that a company owes to outside parties, equity refers to ownership interest in an asset, and an asset is something valuable owned by the organization. Thus, while they play important roles in financial contexts, they do not directly signify the potential for loss like risk does.