Risk Concepts Engagement risk - public accountant's risk of association with certain clients. Higher risk may result from business failure, volatile industry, likelihood of lawsuit. Engagement risk exists separately from the audit. It is the auditor's objective to assess engagement risk accurately. Audit risk - risk that the auditor will give an unqualified opinion on financial statements that are materially misstated.
Audit risk is controlled by the auditor.
Auditors can set audit risk at any level with which they feel comfortable. The lower the audit risk, the more work for the auditor Relationship between audit and engagement risk Generally, an inverse relationship, such that the higher the engagement risk, the lower the auditor will set audit risk. When engagement risk is very high, auditors may not accept the audit engagement Audit Risk and Materiality Essentially, these concepts are inseparable. Audit risk relates to factors that might encourage someone to challenge the auditor's work. Audit Risk Model General observations Complex or unusual transactions are more likely to be recorded in error.