The Audit Risk Model
Understanding Audit Risk
Audit risk is the risk that an auditor expresses an inappropriate opinion when the financial statements contain a material misstatement. The audit risk model helps auditors determine how much evidence is necessary.
Audit Risk = Inherent Risk × Control Risk × Detection Risk
Note
Auditors assess inherent and control risk but directly manage only detection risk.
Summary
The audit risk model guides auditors in determining the amount and quality of evidence required.