Audit risk is defined as the probability that auditors will give an incorrect opinion on financial statements.

Audit risk is defined as the probability that auditors will give an incorrect opinion on financial statements.

• A. The probability that auditors will give an incorrect opinion on financial statements.
• B. The probability that management will cause restatements after year-end.
• C. The risk of misstatement due to fraud alone.
• D. The risk that external auditors will audit only a sample.

Answer: (A)

Audit risk is the chance that the auditor ends up giving an incorrect opinion on the financial statements when they are actually materially misstated. It captures the possibility that misstatements (whether due to error or fraud) exist and that the auditor’s procedures fail to detect them enough to prevent an wrong opinion being issued. The other statements aren’t the definition: management restating after year-end relates to management risk, not the auditor’s conclusion. Saying the risk is misstatement due to fraud alone narrows the scope to fraud, whereas audit risk covers misstatements from any cause, including errors. The idea that auditors will only audit a sample points to sampling risk, which is a factor within detection risk, not the overall audit risk.

Audit risk is the chance that the auditor ends up giving an incorrect opinion on the financial statements when they are actually materially misstated. It captures the possibility that misstatements (whether due to error or fraud) exist and that the auditor’s procedures fail to detect them enough to prevent an wrong opinion being issued.

The other statements aren’t the definition: management restating after year-end relates to management risk, not the auditor’s conclusion. Saying the risk is misstatement due to fraud alone narrows the scope to fraud, whereas audit risk covers misstatements from any cause, including errors. The idea that auditors will only audit a sample points to sampling risk, which is a factor within detection risk, not the overall audit risk.