Page 101 - AAA Integrated Workbook STUDENT S18-J19

Planning, materiality and assessing the risk of material misstatement

Detection risk: is the risk that the procedures performed by the auditor
do not detect a misstatement that exists and could be material.

Detection risk is made up of:

 Sampling risk: the risk that the conclusion drawn from the results
of a sample test is different from the conclusion that would have
been drawn had the whole population been tested.

 Non-sampling risk: the risk of drawing the wrong conclusion for
other reasons.

Non-sampling detection risks include situations such as:

 First year of auditing the client therefore a lack of cumulative knowledge and
experience.

 The client is putting the auditor under undue time pressure resulting in the audit
being rushed and misstatements possibly going undetected.

 The client operates from multiple sites and the auditor may not be able to visit
each site during the audit. This will be an issue, for example, if a material
amount of inventory is held at sites not visited by the auditor.

If no detection risks are given in the scenario, an answer to an audit risk
question will be identical to an answer to a risk of material misstatement
question.

97