Audit and Assurance Practice Exam 2025 – Complete Prep Resource

Detection risk refers specifically to the risk that an auditor will not identify a material misstatement in the financial statements due to their audit procedures. This concept is fundamental in auditing as it directly impacts the effectiveness of the audit process. Auditors design their procedures to provide reasonable assurance that financial statements are free from material misstatement, yet there remains a possibility that some errors might evade detection, even with effective audit strategies.

This type of risk is closely tied to the overall audit risk model, which consists of inherent risk, control risk, and detection risk. Detection risk highlights the limitations of audit procedures and emphasizes the importance of the auditor's effectiveness in performing tests and applying professional judgment.

The other options discuss risks that do not pertain directly to the auditors’ likelihood of overlooking material misstatements, making it clear why they are not aligned with the definition of detection risk. Therefore, understanding detection risk is crucial for auditors to assess the overall risk of the audit and to develop appropriate responses to minimize it.