[SIMmer Down]

Would it ever be possible for an event to cause inherent risk to DECREASE? If so, can you give an example?

How would using a component auditor’s work affect the AR = DR x CR x IR? Personally, I feel like it would increase inherent risk and cause detection risk to decrease because the increase in inherent risk would cause the auditor to perform audit procedures on the component financial statements.

Thanks in advance for your help!

[ofarooqi]

Inherent risk can surely decrease but not because of any action or inaction on part of the auditor. Let's say the company had a lot of hedging transactions last year but no controls associated with it so normally the inherent risk would definitely increase in this situation. But this year the company decided to divest in all of its hedging activities so this year inherent risk would decrease however, not because of anything the auditor did. The auditor can only increase/decrease the detection risk.

Hope this makes sense! All the best!

5/14/2015 - FAR - 92
5/20/2015 - REG - 92
5/24/2015 - AUD - 96
5/28/2015 - BEC - 94

[Martin]

If you have a scenario that increases IR, and they ask you about how the equation will change, the answer will be Increase IR, CR stays the same, and DR will decrease, am I correct?

Through God all things can happen!

“You never fail until you stop trying.”
― Albert Einstein
When I was young, I used to admire intelligent people;as I grow older, I admire kind people.
“Just keep swimming, just keep swimming.”

FAR= 72-84
Audit= 73-82
BEC= 74-75
Reg=77

[Author]

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