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If the client shows a high detection risk, the auditor will likely be able to detect any material errors. By understanding what audit risks are and implementing effective measures such as adequate internal controls, companies can minimize their exposure to these risks and ensure more accurate results from their audits. After the auditors are able to gauge the relationship between the different components, as well as the total risk resulting as a consequence, they then aim to reduce the risk to an acceptable level. In this regard, it can be seen that the risk of material misstatement is declared to be under the control of the management. Inherent risk and control risk, deeply rooted in the entity\u2019s operations and its surrounding environment, demand an auditor\u2019s astute evaluation. These components require a thorough analysis at both the overarching financial statement level and the more granular assertion level.<\/p>\n
For example, if the risk of material misstatement is high, auditors need to reduce the level of detection risk. If auditors believe that the client\u2019s internal control can reduce the risk of material misstatement, they will assess the control risk as low and perform the test of controls to obtain evidence to support their assessment. In this approach, auditors analyze and assess the risks related to the client\u2019s business, transactions and\u00a0internal control\u00a0system in place which could lead to misstatements in the financial statements.<\/p>\n