substantial audit risk

Substantial audit risk refers to the likelihood that an auditor might issue an incorrect opinion on a company’s financial statements, specifically if those statements are significantly misleading or inaccurate. This risk arises from factors like complex transactions, weak internal controls, or significant errors. When audit risk is substantial, it means there's a notable chance that the auditor could overlook material misstatements, leading to an inaccurate assessment of the company’s financial health. Managing this risk involves careful planning, testing, and professional judgment to ensure the financial statements accurately reflect the company's true financial position.