Audit risks and material misstatement risks

Audit risk is the risk that the auditors will issue an inappropriate opinion – normally in the context of a clean opinion where a dirty one was more appropriate

So it’s a risk that faces the auditor

Material misstatement risk is a risk that faces those charged with governance and is the name given to the risk that the financial statements will be materially … misstated

This is therefore a risk that faces management

Obviously, if there is a risk that the financial statements will be materially misstated, that has an impact on the auditor as they form their opinion as to whether those financial statements may not be showing a true and fair view and thus whether the auditors’ opinion may increasingly be prone to being inappropriate

before the (relatively) recent revision of the standards, the risk of material misstatement was previously known as two separate risks – control risk and detection risk

Further, these two separate risks were two thirds of the three risks that collectively were known as audit risk (the third was inherent risk)

So we were always able to say that inherent risk * control risk * detection risk = audit risk

Control risk and detection risk have now been rolled into one and re-named ‘risk of material misstatement’

You ask ‘What is the difference between the audit risks and material misstatement risk’

Following from the above you should be able to see that risk of material misstatement is an integral element of the risk faced by auditors (audit risk)

You also ask “What is the difference in answering technique of these requirements?”

Very simply … none!

Read the question very carefully making sure that you fully understand the question requirement. Plan an answer accordingly. Re-read the question requirement to ensure that, if you were to write out an answer based on your plan, your answer would RELEVANTLY answer the question that was asked and that it also answers THE WHOLE of the question requirements

But that’s the same technique for ALL questions in these ACCA examinations

OK?