Audit risk is that the auditor will not be able to give a true and fair opinion on the basis of an audit of financial statements. The audit risk is comprised of three different types of risks; inherent risk, control risk, and detection risk.
Inherent risk is associated with the nature of the company or assignment. For example, if a company has never been audited before, this makes it an inherently risky client for an audit firm.
Control risk is higher for clients where internal controls are weaker and thus it makes the auditors increase the strength of substantive procedures.
Detection risk is that the auditor will not be able to detect the material misstatements in the financial statements. It lies with the auditor and an auditor is required to be skeptical during the audit assignment.
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