Audit risk is the potential risk that auditors express an inappropriate opinion on the financial statements due to existing errors or frauds undetected during the auditing process. This risk arises from a combination of inherent risk, control risk, and detection risk, where inherent risk occurs due to business or operational conditions, control risk signifies the failure of internal controls, and detection risk relates to the auditor's procedures failing to detect such inaccuracies.

For instance, even if the financial records of an organization's balance sheet appear accurate, issues such as unrecorded liabilities due to weak month end practices, as presented in month end checklists, can elevate audit risks by leading auditors to wrong conclusions. Proper internal finance team's diligence and adherence to accounting standards can mitigate these risks significantly.

By thoroughly understanding audit risks and employing methods such as robust trial balances and cutoff procedures, organizations, alongside auditors, can ensure higher accuracy ensuring better compliance and reliability of the financial statements.