What is Detection Risk

The objective of this article is to evaluate the volatility of semiconductor manufacturing companies in Taiwan and Japan. This article is an empirical study to evaluate the volatility of the top 10 large semiconductor companies in Taiwan and Japan using their financial statements and stock prices. By comparing Taiwanese and Japanese companies' volatility, the author can show the significance of evaluating the volatility by auditors. This can contribute to improving the audit practice of risk-based procedures. The author made the following conclusions: (1) Detection risk, inherent risk, control risk, risk of material misstatement, and business risk are related theoretically as follows: DR = AR / (IR x CR) = AR / RMM = AR / BR. (2) The volatility is equivalent to IR × CR, RMM, or BR. It resides in the client company. Auditors can't control it but just evaluate it. (3) Two empirical studies of the semiconductor companies of Taiwan and Japan clearly demonstrate the different values of volatility.