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Detection Risk

Jishnu (CA CWA Final (Manager Audits)) (56 Points)

24 May 2011

Hi,

Anybody please comment abt

Detection Risk

Its assessment

(with examples)

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3 Replies

Suraj S (Audit Executive) (335 Points)
Replied 24 May 2011

as far as what i understand detection risk is that an auditor is at the risk of not finding out/detecting some irregularities......for example the compensating errors which can be made by the client while making up the accounts.....such errors may be diificult to find out by an auditor as there will be no evidence as to that error has been actually made....so here the auditor is at a detection risk of not finding such errors....

Resham (Carpe Diem !!!) (6535 Points)
Replied 16 June 2011

Agree with Suraj... Detection risk is the risk that an auditor might not find out a misstatement and report it even though the misstatement does exist. This may be due to a number of reasons like

- Lack of professional skepticism

- Lack of observation

- Non submission of information from client

And also due to some reasons beyond the control of the auditor like

- Lack of audit scope

- Test nature of Audit

Resham (Carpe Diem !!!) (6535 Points)
Replied 16 June 2011

To minimize this risk the auditor should evaluate the internal control by seeing to it whether proper audit trail is maintained, etc and then deciding the Nature, timing and extent of Audit procedures to be performed.

For example: If frieght is paid by the client for purchasing the materials without adhering to the agreement between the client and the other party then further probing is required as to in which cases who bears the freight charges... thus extent of Audit procedures increases to reduce detection risk...