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Dear ma’am,
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!
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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