Audit risk is a term which refers to the risk of the outcome of an audit being incorrect. Usually, this refers to the risk that the financial statements are materially misstated. In this case, the audit risk is that the auditing firm has given the wrong audit opinion.
Concepts of Audit Risk
In theory, audit risk ranges anywhere from zero (0.0), where there is complete certainty of no material misstatement, to one (1.0), where there is complete certainty of a material misstatement. In practice, however, audit risk is always greater than zero.
There is always some risk of material misstatement as it is not possible, (except for the audit of the simplest of financial statements), due to the limitations inherent in both accounting and auditing, to be absolutely certain a material misstatement will not exist.