Audit risk consists of:
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A. B. C. D.C
Audit risk refers to the risk that an auditor expresses an inappropriate opinion on the financial statements. It consists of two components: the risk of material misstatement and the risk of detection.
The risk of material misstatement (RMM) refers to the risk that the financial statements contain material misstatements that would not be detected or corrected by the company's internal control or by the auditor's procedures. RMM is affected by various factors, including the nature of the company's operations, the complexity of its transactions, the competence of its personnel, and the effectiveness of its internal controls.
The risk of detection (ROD) refers to the risk that the auditor will not detect a material misstatement that exists in the financial statements. ROD is affected by the nature, timing, and extent of the auditor's procedures.
Audit risk is the product of RMM and ROD. As such, it represents the risk that the auditor will express an inappropriate opinion on the financial statements. The auditor's goal is to reduce audit risk to an acceptable level by applying appropriate audit procedures.
Therefore, the correct answer is (C) Both A & B, as Audit risk consists of the risk of material misstatement and the risk of detection.