- July 5, 2021 at 8:39 am #627003aarti2407Member
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the definition of audit risk is: “Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.”
So, does this mean that when an auditor gives a modified opinion for FSs which are free from material misstatements, that is not audit risk?
thank you so much!July 5, 2021 at 6:56 pm #627033Kim SmithKeymaster
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In the main, audit risk is saying the financial statements “present fairly/show a T&F view” – when they don’t. I.e. expressing an unmodified opinion when it should have been modified.
In theory it also includes expressing a modified opinion when it should be unmodified. This really doesn’t happen in practice! If the auditor says to management “we are going to modify the opinion because [this material is not recoverable and you haven’t made an allowance for it – so trade receivables are overstated” – if management believes that there is no misstatement because the debt is recoverable, it is for management to provide additional evidence to the auditor to show that is the case.
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