Which of the following statements is correct?
A) If detection risk is high, significant substantive procedures are necessary to reduce detection risk.
B) There is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.
C) There is no relation between the auditor's assessed risk of material misstatement and detection risk.
D) If detection risk is low, only a small number of substantive procedures are necessary to reduce the detection risk.

Question

Quizplus · Accepted Answer

Detection risk is one of the components of audit risk along with inherent risk and control risk. The auditor assesses inherent risk and control risk separately from detection risk. Detection risk can be defined as the risk that the auditor will not detect material misstatements that are present in the financial statements. When assessed risks of material misstatement (inherent risk and control risk) are higher, the auditor needs to lower detection risk by performing significant substantive procedures. Conversely, lowering the assessed risks of material misstatement reduces the level of detection risk that the auditor can accept. Therefore, there is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.

Which of the Following Statements Is Correct