Detection risk
Financial Dictionary — Auditing Risk
Definition
The risk that the auditor’s procedures will not detect a material misstatement.
Detailed Explanation
Detection risk is the risk that audit procedures will not identify existing material misstatements.
Common Uses
- Used in audit planning to understand risks and design procedures.
- Used during testing (controls/substantive) and documentation of audit evidence and conclusions.
- Used during testing (controls/substantive) and documentation of audit evidence and conclusions.
Practical Example
- Example: The auditor references **Detection risk** when designing procedures and documenting conclusions in the audit file.
Why This Term Matters
- Why it matters: Supports high-quality, defensible audit conclusions and helps detect material misstatements and control weaknesses.