[skintapeup]

I was just wondering with the Audit Risk formula, when there is an example that pertains to whether you increase or decrease “inherent risk,” do you also have to increase or decrease “detection risk?” Can “detection risk” be unaffected regardless of what happens to “inherent risk” or “control risk?” Thanks for any help.

[MCLKT]

Detection Risk is related to the audit, while Control and Inherent Risks are not. They exist with or without the Audit. The Auditor simply assesses the latter two.The auditor is never able to adjust Inherent Risk or Control Risk.

Changes in Inherent Risk, Control Risk, Detection Risk are all separate and do not affect the other, but they do affect the overall Audit risk.

AR = IR x CR x *DR*

The auditor will use Detection Risk to adjust the overall Audit Risk.

So if the Inherent Risk is assessed at a high level, the Audit Risk high.

In order to get the Audit Risk back to an ok level, the auditor will want to DECREASE detection risk by performing additional substantive tests.

Another way to look at it. If Control Risk is low (the auditor can trust good controls are in place). Then Audit Risk is seemingly low. If the auditor is willing to accept a higher Audit Risk, he may INCREASE detection risk, this will allow him to perform LESS substantive tests (which could allow for greater error). But because the controls are good, the auditor is ok with the higher chance of audit risk and is relying on controls to do their job.

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Author]

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