What is Audit Risk?
Audit risk is the risk that an auditor expresses an inappropriate opinion when the financial statements are materially misstated. It is a combination of inherent risk, control risk, and detection risk.
How It Works
- Assess inherent and control risk at the assertion level.
- Plan detection risk to keep overall audit risk acceptably low.
- Adjust procedures based on risk assessment.
Saudi Context
SOCPA expects audit firms to document a risk assessment under ISA 315 for every Saudi engagement, especially for sectors with high estimation uncertainty (real estate, construction).
Example
A Saudi construction client has high inherent risk on revenue recognition. The auditor responds with extensive testing of percentage-of-completion estimates.