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Governance, Risk, Audit & Privacy · Intermediate

Audit Risk

Risk that the auditor reaches an incorrect conclusion, such as issuing an unqualified opinion when material errors exist.

Definition

Audit risk = inherent risk x control risk x detection risk. Auditors cannot change inherent or control risk, so they manage audit risk by adjusting detection risk through the nature, timing, and extent of testing.

Example

Because control risk is high, the auditor increases substantive testing to lower detection risk.

Exam tip

Detection risk is the only component the auditor directly controls.

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