4.3 - Risks the Auditor Will Not Detect a Material Misstatement in the Financial Statement

Question 1

Define detection risk

Answer 1

The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and could be material, either individually or when aggregated with other misstatements

Question 2

In what way do auditors have more control over detection risk?

Answer 2

If risk is too high to be tolerated, the auditors can carry out more work to reduce this aspect of audit risk and thus audit risk as a whole

Question 3

What do auditors want for their audit level?

Answer 3

They want it to be an acceptable level - if the chance of them giving an inappropriate opinion or being sued is high, it might be better to not do the audit at all

Question 4

What is the standard level of audit risk that is considered to be acceptable?

Answer 4

There is no standard level - it is a matter of audit judgement and will vary from firm to firm, and audit to audit