Audit risk

Certain accounts like Cash, Lines of Credit, and Intangibles have to be audited 100 percent because these generally involve perceptible and provable transactions which do not normally expend time in the entire audit process. These are also significant figures to a confectionary industry like Sweet Truths.

The accounts that are audited 100 percent needs to have materiality apportioned to such accounts; this is the reason why materiality is distributed only to those accounts that are sampled. In accounts like inventory, property, plant and equipment, and accounts payable, a number of transactions and verification have to be undergone and auditing them meticulously would take so much time.

Detection risk is the only component of audit risk that is within the control of the auditor. This risk may fall under the control of an auditor by means of knowing the range of the audit procedures performed by him or her as an auditor.  From the balance sheet accounts in the simulation provided, I presumed the audit risk is at high while having inherent risk and control risk at low for a certain detection risk at high.

            The reason the three risks that compose audit risk are inter-related is that they support the assessor like an auditor to ascertain the extent of auditing systems and procedures in a certain balance of account or in a group of transactions. The three risks namely, inherent risk, control risk and detection risk are deemed to be the products of an audit risk model. Both inherent risk and control risk cover the account balance or class of transaction, its associated claims and assertions that possibly contain erroneous reports that could be substantial to the financial statements upon combination with statement flaws in some other balances or classes. Detection risk, as defined, is an audit procedure that leads the auditor to conclude that erroneous statements which could be material do not exist when in the actual setting such incorrect statements do exist. The higher would be the identified audit risk, the lesser is the evidence of risk that has to be accumulated by the auditor, vice versa.



Austin Community College District (2007, May 16) Detection Risk. Retrieved July 15, 2008, from

FratFiles (n.d.) The World of Risk. Retrieved July 15, 2008, from

Reyhl, Duane (2006, May 28) Materiality. Retrieved July 15, 2008, from

Australian Educational Research Pty Ltd. (n.d.) Audit Risk. Retrieved July 15, 2008, from

University of Birmingham (n.d.) Audit Risk, Retrieved July 15, 2008, from


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