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1.2 Definitions

 Audit risk: the risk that the auditor expresses an inappropriate
opinion on the financial statements. Audit risk comprises the risk
of material misstatement and detection risk.

 Risk of material misstatement: the risk that the financial
statements are materially misstated prior to the audit
commencing.

 Inherent risk: the susceptibility of an assertion about
transactions, balances or disclosure to a misstatement which
could be material, assuming there were no related internal
controls.

 Control risk: the risk that a misstatement is not prevented,
detected or corrected by the entity’s internal control systems.

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

 Professional scepticism: an attitude that includes a questioning
mind, being alert to conditions which may indicate possible
misstatement due to fraud or error, and a critical assessment of
audit evidence.

 Professional judgment: application of relevant training,
knowledge and experience in making informed decisions about
the courses of action that are appropriate to the unique
circumstances of the audit engagement.

 Misstatement: A difference between the amount, classification,
presentation, or disclosure of a reported financial statement item
and the amount, classification, presentation, or disclosure that is
required for the item to be in accordance with the applicable
financial reporting framework. Misstatements can arise from error
or fraud.

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