| Audit Risk Equation: | ||||||||
| Audit Risk = Risk of Misstatement × Detection Risk | ||||||||
| Audit Risk = (Inherent Risk × Control Risk) × Detection Risk | ||||||||
| Applicability: | ||||||||
| Audit Risk = (IR ×CR) × DR | ||||||||
| (High × HIgh) × Lowest | ||||||||
| Highest × Lowest | ||||||||
| Medium |
||||||||
| Hence, despite of highest cumulative effect of inherent and control risk auditor is managed to keep the total audit risk at MEDIUM with the help of his in-depth substantive procedures. | ||||||||
| From the above discussion we can understand that, combined effect of IR and CR should be inversely proportional to DR, if auditor wish to set its overall audit risk OPTIMISED. | ||||||||
Sunday, 18 September 2016
Audit Equation
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