Detection risk
Detection Risk (DR) is the risk that the auditor will not detect a misstatement that exists in an assertion that could be material (significant), either individually or when aggregated with other misstatements.[1] In other words, the chance that the auditor will not find material misstatements relating to an assertion in the Financial statements through substantive test and analysis.[2] Detection risk results in the auditor's conclusion that no material errors are present where in fact there are.
Detection Risk and quality of audit have an inverse relationship: if detection risk is high, lower the quality of audit and if detection risk is low, generally higher the quality of audit.
Relationship between detection risk and audit risk
The provided relationship could be also called as detection risk formula:
• Detection risk = audit risk / (inherent risk * control risk)
• Detection risk low - More evidence you have to collect
• Detection risk high - Less evidence you have to collect[3]
References
- ^ ISA 200 Objectives and General Principles governing audit of Financial Statements.
- ^ http://www.investopedia.com/terms/d/detection-risk.asp
- ^ Transtutors. "Detection Risk - Transtutors". Transtutors.com.