The risk of material misstatement is a function of
A)audit risk and detection risk
B)inherent risk and control risk
C)audit risk and inherent risk
D)control risk and detection risk

Question

Quizplus · Accepted Answer

The risk of material misstatement is a combination of inherent risk and control risk, which are the two components of the client's risk. Inherent risk refers to the susceptibility of an assertion to a material misstatement, while control risk refers to the likelihood that a material misstatement could occur and not be prevented or detected by the client's internal controls. These two risks together determine the overall risk of material misstatement. The auditor then assesses detection risk, which refers to the risk that the auditor's procedures will not detect a material misstatement, and combines it with inherent risk and control risk to determine the appropriate level of substantive testing. However, the risk of material misstatement itself is primarily driven by the inherent risks and control risks associated with the client's operations and financial reporting.

The Risk of Material Misstatement Is a Function of