What is Audit Risk defined as?
AThe risk that the auditor expresses an inappropriate audit opinion when financial statements are materially misstated
BThe risk that the company goes bankrupt after audit completion
CThe risk of audit fee non-payment by the client
DThe risk that management cancels the audit contract
Explanation
Core Concept: Audit Risk is the technical risk that the auditor gives a clean (unqualified) opinion on financial statements that contain material misstatements. Context/Distractors: Audit Risk = Inherent Risk × Control Risk × Detection Risk. Client business failure or fee disputes fall outside technical audit risk. Exam Tip/Key Fact: Detection risk is the only component of audit risk directly controlled by the auditor.
Exam Relevance
- Topic: Auditing
- Subtopic: Audit Risk Model
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