Detection Risk

What is 'Detection Risk'

Detection risk is the chance that an auditor will not find material misstatements relating to an assertion in an entity's financial statements through substantive tests and analysis. Detection risk is the risk that the auditor will conclude that no material errors are present when in fact there are. Detection risk is one of the three elements that comprise audit risk, the other two being inherent risk and control risk.

BREAKING DOWN 'Detection Risk'

Exhaustive substantive tests and analysis may reduce the level of detection risk. Detection risk also depends on the quality of the auditors - the lower the quality of the auditor, generally the higher the detection risk. Detection risk may also be higher in regions where regulatory bodies are relatively ineffective.

RELATED TERMS
  1. Auditor

    An official whose job it is to carefully check the accuracy of ...
  2. Inherent Risk

    The risk posed by an error or omission in a financial statement ...
  3. Auditor's Report

    Recorded in the annual report, the auditor's report tests to ...
  4. Audit Cycle

    The accounting process that auditors employ in the review of ...
  5. Certified Internal Auditor - CIA

    A certification offered to accountants who conduct internal audits. ...
  6. Independent Auditor

    A certified public accountant who examines the financial records ...
Related Articles
  1. Managing Wealth

    Financial Auditor: Job Description & Average Salary

    Discover what it means to hold a financial auditor position, including typical job duties, education and training, required skills and expected salary.
  2. Investing

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  3. Investing

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  4. Managing Wealth

    Financial Auditor: Career Path & Qualifications

    Learn more about what it takes to become an internal or external financial auditor, and determine whether the profession is right for you.
  5. Managing Wealth

    Internal Auditor: Job Description & Average Salary

    Learn about what the job of internal auditor entails, as well as the median salary, education and certifications required and future career path.
  6. Managing Wealth

    Career Advice: Accounting Vs. Auditing

    Understand the subtle distinctions between accounting and auditing, and learn what each offers a new graduate in terms of salary, job security and daily life.
  7. Professionals

    Internal Auditor: Career Path & Qualifications

    Find out what kind of work internal auditors do in large organizations, and learn more about how to get started working in the field.
  8. Markets

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  9. Managing Wealth

    What is Inherent Risk?

    Inherent risk is the possibility of inaccurate information appearing in a financial statement due to factors such as error or omission.
  10. Investing

    An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.
RELATED FAQS
  1. What are some examples of inherent risk?

    Read about the nature of inherent risk in preparing and executing financial audits, including some common situations that ... Read Answer >>
  2. How is inherent risk assessed by an auditor?

    Learn how CPA auditors assess the levels of inherent risk of different audit areas that they use to design the procedures ... Read Answer >>
  3. How important are contingent liabilities in an audit?

    Read about the importance of contingent liabilities during an audit, why audits are necessary and how contingent liabilities ... Read Answer >>
  4. Are money market funds considered cash?

    Learn the difference between how analysts and auditors treat money market funds and why not knowing the difference can hurt ... Read Answer >>
  5. What is the difference between inherent risk and systematic risk?

    Learn about inherent and systematic risk, two types of risk that affect investments, the differences between them and how ... Read Answer >>
  6. What are the benefits of financial sampling?

    Learn more about how financial sampling is used to determine whether or not inaccurate or fraudulent information exists in ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center