ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which of the following is NOT a component of audit risk?

1. Inherent risk

2. Control risk

3. Materiality risk

4. Detection risk

The correct answer is: Materiality risk

The correct response indicates that materiality risk is not considered a component of audit risk. In the context of an audit, audit risk is the risk that the auditor may issue an inappropriate opinion on financial statements that are, in fact, materially misstated. Audit risk is typically composed of three main components: inherent risk, control risk, and detection risk. Inherent risk refers to the susceptibility of an account balance or class of transactions to misstatement due to error or fraud, without considering any related internal controls. Control risk is the risk that a misstatement could occur in an account and not be prevented, detected, or corrected on a timely basis by the entity’s internal controls. Detection risk, on the other hand, is the risk that the auditor's procedures will not detect a material misstatement. Materiality relates to the significance of an amount, transaction, or discrepancy in the context of the financial statements as a whole, influencing decisions of users. While materiality is a critical concept guiding the auditor's work, particularly in assessing what is considered a material misstatement, it does not fit within the framework of audit risk components themselves. Thus, identifying materiality risk as a non-component reinforces the understanding of how these concepts interact in the planning and execution of