Answer: Audit risk is the risk that an auditor issues an incorrect opinion on the financial statements. Examples of inappropriate audit opinions include the following: Audit Risk = Inherent Risk x Control Risk x Detection Risk Inherent Risk Inherent Risk is the risk of a material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls (factors that may cause a misstatement due to absence or lapse of controls are considered separately in the assessment of control risk). Inherent risk is generally considered to be higher where a high degree of judgment and estimation is involved or where transactions of the entity are highly complex. Control Risk Control Risk is the risk of a material misstatement in the financial statements arising due to absence or failure in the operation of relevant controls of the entity. Organizations must have adequate internal controls in place to prevent and detect instances of fraud and error. Control risk is considered to be high where the audit entity does not have adequate internal controls to prevent and detect instances of fraud and error in the financial statements. Detection Risk Detection Risk is the risk that the auditors fail to detect a material misstatement in the financial statements. Detection risk can be reduced by auditors by increasing the number of sampled transactions for detailed testing. http://accounting-simplified.com/audit/risk-assessment/audit-risk.html Solution Answer: Audit risk is the risk that an auditor issues an incorrect opinion on the financial statements. Examples of inappropriate audit opinions include the following: Audit Risk = Inherent Risk x Control Risk x Detection Risk Inherent Risk Inherent Risk is the risk of a material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls (factors that may cause a misstatement due to absence or lapse of controls are considered separately in the assessment of control risk). Inherent risk is generally considered to be higher where a high degree of judgment and estimation is involved or where transactions of the entity are highly complex. Control Risk Control Risk is the risk of a material misstatement in the financial statements arising due to absence or failure in the operation of relevant controls of the entity. Organizations must have adequate internal controls in place to prevent and detect instances of fraud and error. Control risk is considered to be high where the audit entity does not have adequate internal controls to prevent and detect instances of fraud and error in the financial statements. Detection Risk Detection Risk is the risk that the auditors fail to detect a material misstatement in the financial statements. Detection risk can be reduced by auditors by increasing the number of sampled transactions for detailed testing. http://accounting-simplified.com/audit/risk-assessment.

1. Answer:
Audit risk is the risk that an auditor issues an incorrect opinion on the financial statements.
Examples of inappropriate audit opinions include the following:
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Inherent Risk
Inherent Risk is the risk of a material misstatement in the financial statements arising due to error
or omission as a result of factors other than the failure of controls (factors that may cause a
misstatement due to absence or lapse of controls are considered separately in the assessment of
control risk).
Inherent risk is generally considered to be higher where a high degree of judgment and
estimation is involved or where transactions of the entity are highly complex.
Control Risk
Control Risk is the risk of a material misstatement in the financial statements arising due to
absence or failure in the operation of relevant controls of the entity.
Organizations must have adequate internal controls in place to prevent and detect instances of
fraud and error. Control risk is considered to be high where the audit entity does not have
adequate internal controls to prevent and detect instances of fraud and error in the financial
statements.
Detection Risk
Detection Risk is the risk that the auditors fail to detect a material misstatement in the financial
statements.
Detection risk can be reduced by auditors by increasing the number of sampled transactions for
detailed testing.
http://accounting-simplified.com/audit/risk-assessment/audit-risk.html
Solution
Answer:
Audit risk is the risk that an auditor issues an incorrect opinion on the financial statements.
Examples of inappropriate audit opinions include the following:
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Inherent Risk
Inherent Risk is the risk of a material misstatement in the financial statements arising due to error
or omission as a result of factors other than the failure of controls (factors that may cause a
misstatement due to absence or lapse of controls are considered separately in the assessment of

2. control risk).
Inherent risk is generally considered to be higher where a high degree of judgment and
estimation is involved or where transactions of the entity are highly complex.
Control Risk
Control Risk is the risk of a material misstatement in the financial statements arising due to
absence or failure in the operation of relevant controls of the entity.
Organizations must have adequate internal controls in place to prevent and detect instances of
fraud and error. Control risk is considered to be high where the audit entity does not have
adequate internal controls to prevent and detect instances of fraud and error in the financial
statements.
Detection Risk
Detection Risk is the risk that the auditors fail to detect a material misstatement in the financial
statements.
Detection risk can be reduced by auditors by increasing the number of sampled transactions for
detailed testing.
http://accounting-simplified.com/audit/risk-assessment/audit-risk.html