Audit Risk Assessment and Detection of Misstatements in Annual Reports: Empirical Evidence from Nigeria

Abstract

Audit risk examines the relevant assertions related to balances, classes of transactions, or disclosures contain misstatements that could be material to the financial statements when aggregated with misstatements in other balances, classes, or disclosures and the risk that the auditor will not detect such misstatements.  This paper examines audit risk assessment and detection of misstatements in annual reports. To achieve this objective, data was collected from primary and secondary sources. The secondary sources were from scholarly books and journals while the primary source involved a well structured questionnaire with an average reliability of 0.91. The data collected from the questionnaire were analyzed using relevant diagnostics tests, granger causality test and multiple regression models. The result revealed that the application of audit risk models statistically and significantly affects the detection of misstatement in financial statements. Hence, the paper concludes that audit risk models reduce the level of fraudulent financial reporting through the detection of misstatements in audit practice and relevant recommendations were provided that would enhance the application of audit risk assessments in the audit of financial statements. Keywords: inherent risk, control risk, detection risk, engagement risk, detection misstatement, Nigeria