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 adequately low level before issuing an opinion on the financial statements. The seesaw below shows how risk of material misstatement is inversely related to detection risk.
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