DISTINCTION AMONG BUSINESS FAILURE AUDIT FAILURE Explain why the failure of financial statement users to differentiate among business failure. aud it failure. and AUDIT RISK audit risk has resulted in lawsuits Business failure occurs when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions Audit failure occurs when the auditorissues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards gaas). Audit risk- represents the risk that the auditor will conclude that the financialstatements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated. EVEN THOUGHIT WAS A WELL-CONDUCTED GAAS AUDIT Irens, Locbbecke: AuditiNg & EArens, Loebbecke; Auditing, 8/E ©2000 Prentice Hall, Inc, Explain why the failure of financial statement users to differentiate among business failure, audit failure, and audit risk has resulted in lawsuits. DISTINCTION AMONG BUSINESS FAILURE, AUDIT FAILURE, AUDIT RISK Business Failure - occurs when a businessis unable to repay its lenders or meet the expectations of its investors because of economic or business conditions. Audit Failure - occurs when the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of generally accepted auditing standards (GAAS). Audit Risk - represents the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated. EVEN THOUGH IT WAS A WELL-CONDUCTED GAAS AUDIT!