Audit risk
The risk of reaching the wrong conclusion about what you audited.
Audit risk has three parts. Inherent risk is the risk before any controls. Control risk is the risk that controls fail to prevent or detect a problem. Detection risk is the risk that the auditor’s own procedures miss it. The auditor can only change detection risk, by doing more or better testing.
On the exam
Questions often ask which risk the auditor controls. The answer is detection risk: when inherent or control risk is high, the auditor reduces detection risk with more substantive testing.
Related terms
- Sampling (statistical and judgemental)Testing part of a population to conclude about the whole.
- Audit evidenceThe information an auditor relies on to support a conclusion.
- MaterialityHow significant a matter is to the people relying on the audit.
Test yourself with today’s question of the day.