audit risk
1. In external auditing, the *risk of giving an inappropriate *audit opinion on the *fair presentation of an organization’s *financial statements. The *sampling of transactions and the *compliance testing of controls cannot offer cast-iron guarantees that all irregularities have been identified, though external audit risk can be mitigated by (i) careful *audit planning, (ii) *representation letters from management, and (iii) adequate *malpractice insurance. External audit risk is sometimes analyzed into three components - *inherent risk, *control risk, and *detection risk - that can be quantified and multiplied together. Audit risk is assessed in order to direct *audit tests at the areas of highest risk: "Generally, the higher the assumed risk, the more stringent the audit action" (Lee, 1993, 177). 2. In internal auditing, the *risk of overlooking or misinterpreting *material matters of concern. The matters under consideration may be quantitative or qualitative.

Auditor's dictionary. 2014.

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