CMA Intermediate · Corporate Accounting and Auditing · Brief Introduction to Auditing Standards
Under SA 200, audit risk is best described as a function of:
Audit risk is a function of the risks of material misstatement and detection risk. It is a technical audit term and does not cover the auditor's business risks such as litigation loss or adverse publicity, so it is not defined by inherent and control risk alone.
- AInherent risk and control risk only
- BDetection risk and materiality only
- CThe risks of material misstatement and detection riskCorrect
- DBusiness risk and the risk of litigation
Explanation
SA 200 says audit risk is a function of the risks of material misstatement and detection risk. Option A omits detection risk. Business risks such as litigation losses are expressly excluded from audit risk as a technical term.
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