HAIRCUT Definition

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HAIRCUT is the amount of reduction in market value given to securities pledged as collateral, typically in a repurchase agreement or a reverse repurchase agreement. This reduc­tion assures the lender of funds in this type of transaction that, even if the collateral's market value declines, there is time to call for additional collateral to bring the collateral value back up to an acceptable level.

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AUDIT RISK is a combination of the risk that material errors will occur in the accounting process and the risk the errors will not be discovered by audit tests. Audit risk includes uncertainties due to sampling (sampling risk) and to other factors (non-sampling risk).

NEGATIVE WORKING CAPITAL is when current liabilities exceed current assets.

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