The Audit Risk Model
Understanding Audit Risk
Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements contain a material misstatement. Auditors use the Audit Risk Model to determine the amount of evidence needed.
Note
Audit Risk = Inherent Risk × Control Risk × Detection Risk (AR = IR × CR × DR).
Tip
Higher inherent and control risks require auditors to reduce detection risk by performing more effective audit procedures.
Summary
The Audit Risk Model helps auditors determine the nature, timing, and extent of audit procedures.