Question

Q3 - Significant Events Impact on Audit Risk components

Answer 1

Audit risk is the risk that auditor gives an inappropriate opinion when the financial statement is materially misstated.

There are three components of Audit Risk explained below:

1) Inherent Risk : It is susceptibility of account balance and class of transaction when there is not internal control. simply it is risk of system of management.

2) Control Risk : It means management or those charged with governance are failing to prevent or detect risk on timely basis on internal control system. simply it is risk of Internal Control system of management.

3) Audit Risk : It is risk when auditors fails to detect the misstatement that is materially misstated. It is risk of sunstantive procedure adopted by auditor.

Inherent Risk and Control risk together is called Risk of Materially Misstated.

I hope this clear your doubt.

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