Detection Risk

Detection risk is the chance that auditors will not identify a material mistake or fraud in a company's financial statements during an audit. It reflects the possibility that even if the company's internal controls and procedures catch errors, some issues might still go unnoticed. Lower detection risk means auditors have more thorough methods to find errors, reducing the likelihood of missing significant issues. Essentially, it balances the risk of missing something important against the effort and scope of the audit process. Managing detection risk helps ensure the financial statements are accurate and trustworthy.