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 |
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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. | ||||||||
Audit Risk Assessement
Sunday 18 September 2016
Audit Equation
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