Unit 8 Listen and Read:
Concept of audit risk
Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. There are two concepts of audit risk: the acceptable level of audit risk, which is based on the expected reliance on the financial statements by users, and the achievable level of audit risk, which is based on evaluations of inherent, control and detection risks. The auditor aims are to achieve an acceptable level of audit risk; to achieve a level of audit risk that is acceptable to the auditor. In very broad terms, audit risk is the risk of a material misstatement of a financial statement item that is or should be included in the audited financial statements of an entity. In this regard, a financial statement item includes any related notes to the financial statements. In theory, audit risk ranges anywhere from zero (0.0), where there is complete certainty of no material misstatement, to one (1.0), where there is complete certainty of a material misstatement. In practice, however, audit risk is always greater than zero.