Explain the significance of and relationships between audit risk, financial statement risk and detection risk.

Expert Solution

Audit risk is entire risk related to audit which is combination of both the financial statement risk and detection risk. Audit risk will be involving also risk that financial statements are materially misstated and there is a risk that these statements and frauds will not be getting detected by audit.

financial statement risk is a risk related to mis statement of the financial statement and these are the risk involving modification and duplication of the financial statements. This is also a risk that important information have not been revealed in the financial statement.

Detection risk is a risk that all the significant misstatement and the frauds which has been done in the financial statement will not be getting detected in the audit process so detection risk is leading to serious frauds.

These are having an importance in the entire audit process because the the financial statements is generally done prior to the audit and detection risk is a risk related to process of the audit so there are serious chances of frauds if these risk are still there.

jeff jeffy answered 2 years ago

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