RE: Louwers pp. 119 to 124
The Audit Risk Model
Inherent risk is the chance of material misstatement assuming there were no related controls. (i.e.,
susceptibility of the client/account/assertion to misstatement).
Control risk is the chance that material misstatements will not be detected or prevented by the
client’s internal control system.
Detection risk is the chance that a material misstatement in the unaudited financial statements will
not be detected by the auditor.
Audit risk is the chance that the auditor fails to modify his/her opinion on financial statements
which are materially misstated (i.e., chance that the auditor misses a material misstatement).
Diagram Source: Guy, Alderman & Winters Auditing, Fifth Edition (Dryden Press)