Detection risk

Detection risk

Detection risk

Detection risk relates to the nature, timing and extent of the auditor’s procedures that are determined by the auditor to reduce audit risk to an acceptably low level.
Compliance audit Financial audit
Planning
Ref: 14.160

Definition

Detection risk, which is under the control of the auditor, is the risk that (s)he will not detect a deviation that has not been corrected by the entity's internal controls.

Instructions

Based on the level of audit risk that is acceptable, and an assessment of the entity's inherent and control risks, the auditor determines the nature, timing and extent of audit procedures necessary to achieve the resulting detection risk. For example:
  • if a lower audit risk is required, detection risk can be reduced by carrying out more substantive procedures, as this affords a greater probability that the auditor will detect material misstatements or irregularities.
  • if intending to place reliance on internal control, tests of controls must be carried out. If the control does not function as intended (thus increasing control risk), detection risk must be decreased, meaning an increase in substantive procedures.

Related documents

Standards ISA 200
Last Modified: 28/03/2020 00:05   Tags: