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Auditing & Assurance › Audit Risk & Materiality

What is a significant risk and how does the auditor respond to it?

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Answer

A significant risk is an identified risk of material misstatement requiring special audit consideration—often involving fraud, complex/subjective estimates, significant unusual or related-party transactions, or judgment. The auditor must understand related controls and perform substantive procedures specifically responsive to it, and cannot rely solely on analytical procedures or prior-year evidence.
Real-world example Revenue recognition is treated as a significant risk, prompting targeted substantive tests and scrutiny of period-end cutoff.

Common follow-ups: What makes a risk 'significant'? | Can you rely only on controls for a significant risk?

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All 18 Audit Risk & Materiality questions