[md27]

Hi All,

Quick question as I have been studying for AUD. Obviously, the audit risk formula is audit risk = RMM X DR, with RMM being IR X CR. Can somebody please explain what happens to detection risk if the IR is high while CR is low? What effect would that have on our substantive testing? I know that a high RMM means more substantive work and a low DR, but if IR is high and CR is low, what does that mean for the RMM? Would that be considered high or low?

[maplewood]

I don't think I've ever seen a question where IR and CR are assessed differently. The MCQs tend to have IR and CR both assessed high or low.

However, if you have a high IR and a low CR, I think substantive testing would be at a “moderate” level. With a high IR, misstatements will occur, but with a low CR, those misstatements will be detected.

I used the charts on this webpage to help me out during my exam. Audit Risk Model

[DoubleBogey]

CR and DR are directly contingent of each other. Generally, a high IR would result in a more in-depth control system, which in itself contains risk. But I agree with Maplewood, I've only seen DR asked in reference to RMM or just CR. High IR * Low CR should= Medium RMM and a DR somewhere in the median as well: it neither increases nor decreases substantive testing.

[ct516]

I believe the answer would be “not enough information to determine” or something alone those lines.

[Author]

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