Audit risk
Audit risk is the risk that the auditor will get the audit opinion wrong.
In practice, this nearly always means that the auditor will fail to qualify an audit report that he should have qualified.
In order for this situation to arise, there needs to be a material error in the accounting records or the financial statements which was not corrected before the financial statements were published and which the auditor did not refer to in the audit report.
Kinds of Audit risks
There are types of Audits risks are describes bellow
01.Inherent risk,
02.Control risk and
03. Detection risk.
01.Inherent risk
Inherent risk is the susceptibility of an assertion to error which
individually or when aggregated with other errors could material to the
financial statements before considering the effect, if any, of related
internal controls e.g:
integrity of management
competence and commitment of staff
time pressure as a result of unrealistic deadlines being set for reporting dates.
Inherent risk is assessed as high if the integrity of management is questionable or the competence of staff is questionable.
02.Control risk and:-
Control risk is the risk that an error which could occur and which
individually or when aggregated with others could be material to the
financial statements will be prevented or detected on a timely basis
with the internal controls.
Control risks arises because
the accounting systems lacks in built internal controls to prevent
inaccurate, incomplete and invalid transaction recording or due to the
intrinsic limitations of internal controls such as collusion among
employees or management overriding controls.
03. Detection risk.
Detection risk is the chance that an auditor will fail to find material misstatements that exist in an entity's financial statements. These misstatements may be due to either fraud or error. Auditors make use of audit procedures to detect these misstatements.