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of Material Misstatement
Audit risk
The risk that the auditor expresses an inappropriate audit opinion
when the financial statements are materially misstated.
Audit risk model
A numerical depiction of the relationship between inherent risk, control
risk, detection risk, and audit risk.
Brainstorming
A group discussion designed to encourage auditors to creatively assess
client risks, particularly those relevant to the possible existence of
fraud in the organization.
Business Risk
Inherent risk at the financial statement level that affects the business
operations and potential outcomes of organizational activities.
Clearly trivial
An amount that is clearly inconsequential, whether taken individually
or in the aggregate and whether judged by any criteria of size, nature,
or circumstances. This term is also referred to as posting materiality.
Control risk
The risk that a misstatement that could occur in an assertion about a
class of transaction, account balance, or disclosure and that could be
material, either individually or when aggregated with other
misstatements, will not be prevented, or detected and corrected, on a
timely basis by the entitys internal control.
Detection risk
The risk that the procedures performed by the auditor to reduce audit
risk to an acceptably low level will not detect a misstatement that
exists and that could be material, either individually or when
aggregated with other misstatements.
Extent of risk response
Refers to the amount of evidence that is necessary given the clients
assessed risks, materiality, and the level of acceptable audit risk.
Inherent risk
The susceptibility of an assertion about a class of transaction, account
balance, or disclosure to a misstatement that could be material, either
individually or when aggregated with other misstatements, before
consideration of any related controls.
Materiality
The magnitude of an omission or misstatement of accounting
information that, in view of surrounding circumstances, makes it
probable that the judgment of a reasonable person relying on the