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.

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  1. Do dividends affect working capital?

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  2. Do prepayments provide working capital?

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  3. Does working capital include inventory?

    A company's working capital includes inventory, and increases in inventory make working capital increase. Working capital ... Read Full Answer >>
  4. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  5. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
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