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dAuditing risk are categorized in three type – Inherent risks, control risks, and detection risks. We shall now discuss each of these below.

Inherent Risk and Control Risk: When assessing inherent risk and control risk the auditors should consider how the financial matters might be misstated due to any kind of fraud or error. In understanding  the risk of misstatements, that might be material,  resulting from and kind of fraud, the auditors should take into account,  whether fraud and, or risk factors are present that highlight the possibility of  fraudulent financial analysis and reporting or misappropriation of recorded assets.

The fact that any fraud is usually concealed can make it very difficult to detect in regular auditing. Certain conditions which exist in the business may indicate the happening of a fraud, but fraud risk factors do not necessarily indicate the existence of fraud however, these indicators are often present in circumstances where frauds have occurred.

Detection Risks: Based on the auditor’s perception and assessment of inherent risks and control risks he must be able to design substantive auditing procedures to reduce the non-detection to a bare minimum. In designing the procedures the auditor must address the fraud risk factors which have been identified by the auditor being present.

If the auditor has detected misstatement is or may be, the result of a fraud, he must evaluate the implications especially those dealing with he organizational positions of the person or persons involved.  The auditor should obtain written representations from the management that it acknowledges its responsibility for the implementation and operation of h accounting and internal control procedures. That the management has disclosed to the auditor all the facts that are significant, relating to any fraudulent matter , or suspected frauds. And that it has disclosed to the auditor the results of its assessment of the risks that the statements can contain misappropriations, which might be material,  because of fraud that remains undetected.