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  • If risk of material misstatement is set at high, what should detection risk be set to?

    Detection risk has an inverse relationship with the assessed risk of material misstatements (Inherent risk X control risk). Therefore, if risk of material misstatement is high, then detection risk would be set to low. Since detection risk is to low, that means that the acceptable level of risk is low, and the audit team should […]

  • What is detection risk?

    Detection risk is the risk that the auditor will not detect a material misstatement that exists in a relevant assertion. Unlike inherent and control risks, detection risk is will not exist independently of the audit. Therefore, the assessed level of detection risk (amount of work the auditor will need to do) will be determined based […]

  • What is audit risk?

    Audit risk is the risk that the auditor will fail to modify an opinion on the financial statements when they are in fact materially misstated. This will typically arise because an auditor will never be able to obtain absolute assurance by conducting audit procedures. Audit risk will only be able to be reduced to an […]