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Hi Mike
I always get confused over identification of audit risk and risk of material misstatements from given scenario . Is there any technique that I can separate two issues quickly and swiftly.
ThanksI presume that you know that audit risk is the product of risk of material misstatement multiplied by detection risk and that
risk of material misstatement is the product of inherent risk multiplied by control risk
So, whenever you identify a risk, ask yourself into which pigeon hole that risk would best fit
Assuming, of course, that you are aware of the meanings of the various expressions:
inherent risk
control risk
detection riskI have to admit that I too find it easy to merge the separate headings and I have to stop and think seriously hard as to whether a risk is a detection risk of a risk of material misstatement
What about this …
… risk of material misstatement is due to failings on the part of the client whereas …
… detection risk is a failing of the auditor
Try that and see if it works for you
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