Question

What are the reasons why audit risk cannot be eliminated?

Answer 1

The risk in audit is fundamental to the process of audit because the auditors do not attempt and cannot check all the transactions. As a result the audit risk cannot be eliminated. Audit Risk includes the inherent risk, control risk and detection risk. The detection risk cannot be eliminated due to the inherent limitations in audit such as the use of sampling for the transactions selection. Neither it would be possible for an auditor to check the entire transactions nor is the company usually prepared on making a heavy payment to the auditors to perform it. Thus the risk based approach cannot be eliminated toward auditing.