All 18 Audit Risk & Materiality questions
More in Audit Risk & Materiality
What is materiality in auditing? What is the relationship between risk and the amount of audit evidence? What is 'clearly trivial' and how does it relate to materiality? Why is materiality a matter of professional judgment? How is materiality calculated in practice? What is performance materiality and why is it lower than overall materiality? What is qualitative materiality and give examples? How do you evaluate misstatements found during the audit? What is the difference between risk of material misstatement at the financial-statement level and the assertion level? How are inherent risk and control risk combined into RMM?
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Auditing & Assurance › Audit Risk & Materiality

What is detection risk and how does the auditor manage it?

Intermediate

Answer

Detection risk is the risk that the auditor's procedures fail to detect a material misstatement that exists. It's the component the auditor controls: when the assessed risk of material misstatement (IR x CR) is high, the auditor lowers acceptable detection risk by performing more effective, extensive, or year-end procedures. It's inversely related to RMM.
If RMM is high -> set detection risk low -> more/better procedures.
If RMM is low -> higher detection risk acceptable -> less testing.
Real-world example Facing high RMM on revenue, the auditor reduces detection risk with larger samples and external confirmations.

Common follow-ups: Why is detection risk inversely related to RMM? | Which risks can the auditor not change?

Audit Sampling Audit Evidence & Procedures Audit Risk & Materiality
All 18 Audit Risk & Materiality questions