Detection Risk


DEFINITION of 'Detection Risk'

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.

  1. Audit

    An unbiased examination and evaluation of the financial statements ...
  2. Audit Risk

    The risk that an auditor will not discover errors or intentional ...
  3. Cook The Books

    A buzzword describing fraudulent activities performed by corporations ...
  4. Auditor's Report

    Recorded in the annual report, the auditor's report tests to ...
  5. Material Weakness

    When one or more of a company's internal controls, put in place ...
  6. Accountant

    A professional who performs accounting functions such as audits ...
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