Essential terms-CH9

Acceptable audit risk—a measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unmodified audit opinion has been issued; see also audit
assurance
Audit assurance—a complement to acceptable audit risk; an acceptable audit risk of two percent is the same as
audit assurance of 98 percent; also called overall assurance and level of assurance
Audit risk model—a formal model reflecting the relationships between acceptable audit risk (AAR), inherent risk
(IR), control risk (CR), and planned detection risk (PDR); PDR = AAR/(IR × CR)
Control risk—a measure of the auditor’s assessment of the risk that a material misstatement could occur in an
assertion and not be prevented or detected on a timely basis by the client’s internal controls
Engagement risk—the risk that the auditor or audit firm will suffer harm because of a client relationship, even
though the audit report rendered for the client was correct
Inherent risk—a measure of the auditor’s assessment of the susceptibility of an assertion to material
misstatement before considering the effectiveness of internal control
Nonroutine transaction—a transaction that is unusual, either due to size or nature, and that is infrequent in
occurrence
Planned detection risk—a measure of the risk that audit evidence for a segment will fail to detect misstatements
that could be material, should such misstatements exist; PDR = AAR/(IR × CR)
Risk—the acceptance by auditors that there is some level of uncertainty in performing the audit function
Significant risk—an identified and as - sessed risk of material misstatement that, in the auditor’s professional
judgment, requires special audit consideration