[Anonymous]

When a question states that acceptable level of detection risk decreases,

Does that mean I tolerate less risk (and do more procedures) or does that mean that there is a smaller chance that I will detect a misstatement, this always confuses me for some reason…!

[MeaDebitum]

I understand it this way: because you decrease the level of detection risk, more substantive testing is done to qualify your decreased level of risk. If your accepted level of detection risk increased, you would need to do less testing.

[SonjaBlue]

A picture can be easier to remember, and understand, than words:

RMM

^

DR Think of this like a seesaw; when DR goes down, Substantive Tests Go Up

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

DR Think of this like a seesaw; when DR goes up, Substantive Tests Go Down

^

RMM

When RMM (IRxCR) increases, detection risk decreases. When detection risk decreases, substantive tests must increase and materiality must decrease. The opposite occurs when RMM (IRxCR) decreases, then detection risk would go up (increase). Now substantive testing would be decreased and materiality would be increased.

It takes a lot of words to remember the relation of DR to substantive testing, but one small picture shows it all.

Hope this helps!

FAR 02/26/13 78 [05/25/12 67]
AUD 07/07/12 85
REG 05/28/13 80 [08/25/12 72]
BEC 11/26/12 81

[Anonymous]

Thanks guys to both of you! I really appreciate it and this does help clarify it for me! This topic is more confusing than other topics for me.

[Anonymous]

If there is no reliance on internal control, then risk of material misstatement increases (RMM)

RMM is composed of inherent (IR) and control risk (CR). AR = IR*CR*DR

Since RMM is high, we are going to skip tests of controls and go on to more substantive testing. More substantive testing will help restrict DR and help keep audit risk lower.

[Author]

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