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CMA Intermediate · Corporate Accounting and Auditing · Brief Introduction to Auditing Standards

Which of the following is NOT included in 'audit risk' as the term is used in the Standards on Auditing?

Loss from litigation or adverse publicity is excluded, because SA 200 treats these as the auditor's business risks and not as audit risk. Audit risk concerns giving an inappropriate opinion when financial statements are materially misstated, linked to the risks of material misstatement and detection risk.

  1. AThe risk that the auditor gives an inappropriate opinion when financial statements are materially misstated
  2. BThe risk that material misstatement is not detected by the auditor's procedures
  3. CThe risk that the auditor suffers loss from litigation or adverse publicity connected with an auditCorrect
  4. DThe risk that misstatements exist that the auditor's procedures fail to find

Explanation

SA 200 states audit risk is a technical term and does not refer to the auditor's business risks such as litigation loss or adverse publicity. It also excludes the risk of expressing that statements are materially misstated when they are not, which is ordinarily insignificant. The other options relate to failing to detect real misstatement.

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