Audit Risk Theory

Audit Risk Theory refers to the likelihood that an auditor might issue an incorrect opinion on a company's financial statements. It involves assessing three key components: the risk that financial statements are materially misstated, the risk that the auditor might not detect these misstatements, and the inherent or control-related risks within the organization. Auditors plan their procedures to reduce this overall risk to an acceptable level, ensuring they provide a fair and accurate opinion. Essentially, it’s about balancing thoroughness and efficiency to confidently verify the accuracy of financial reports.