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Hi Mike,
Could you please clarify the difference in answers examiner expects from us in questions asking for “Business Risk” , ” Audit Risk ” and ” Risk of material Misstatement ” ?
There has been SO MUCH correspondence about this that I despair when I think that no-one reads previous posts!
“Once more unto the breach, dear friends, once more”
Business risk is risk that faces a business. Withdrawal of licence, increase in cost of capital, loss of market share, breach of law, regulation or constitution are just examples of a multiplicity of business risks that an entity could face
Audit risk is the risk that an auditor reaches and expresses an inappropriate audit opinion and, in particular, fails to qualify an opinion where a qualification would have been appropriate
Audit risk is the product of inherent risk multiplied by risk of material misstatement.
Risk of material misstatement is itself the product of control risk multiplied by detection risk
As a component part of audit risk, risk of material misstatement can be seen to be a risk facing the auditor (as distinct from business risk that faces the entity).
Audit risk is also a risk facing the auditor and the auditor will thus be required to exercise their professional skills and experience in order to reduce the level of audit risk to an acceptable level
OK?
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