Detection risk at the financial statement level may be defined as the risk that a material misstatement in the unaudited financial statements will not be detected by the auditor. This evaluation is a far broader evaluation of detection risk than the evaluation of detection risk at the account balance assertion level which focusses on individual account balance assertions. In order to be consistent with the evaluation of other risk components at the financial statement level, detection risk is evaluated in very broad terms as outlined below. Independence of the auditor.
Independence refers to both independence in fact and independence in appearance.
Independence in fact may be addressed for instance, by the audit firm having a policy prohibiting the owning of equity in, or the acting as a director of, client companies. Ability to provide an appropriate level of service. In other words, policies that aim to ensure that audit staff that are engaged by the firm are appropriately qualified and experienced. In addition, evidence could be gathered as to whether the audit firm has continuing policies of both client and firm evaluation to ensure that not only are such matters as changes in the nature of the client's business considered, but also to ensure that the auditor and the audit firm continues in its ability to service the client independently and competently. Opinion formulation stage Detection risk at the financial statement level evaluated during the opinion formulation stage is referred to as the evaluation of DR 5 .