Why do auditors use the audit risk model when planning an audit? If audit evidence was...

Why do auditors use the audit risk model when planning an audit? If audit evidence was gathered and evaluated and an auditor decides to increase the assessed level of control risk from that originally planned what would need to be done in order to achieve an overall audit risk level that is substantially the same as the planned audit risk level? Why would an auditor want to achieve this level?

Expert Solution

Solution:-

Why do auditors use the audit risk model when planning an audit:-

The audit risk model is used primarily for planning purposes in deciding how much evidence to accumulate in each cycle. The auditor sets an acceptable level of audit risk, (AAR) assesses inherent risk (IR) and control risk (CR), and then uses the following audit risk model to determine an appropriate level of planned detection risk (PDR):

If audit evidence was gathered and evaluated and an auditor decides to increase the assessed level of control risk from that originally planned what would need to be done in order to achieve an overall audit risk level that is substantially the same as the planned audit risk level? Why would an auditor want to achieve this level:-

Based on audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would decrease detection risk.

Overall audit risk is made up of the risk of materialmisstatement and detection risk. The risk of material misstatement is itself comprised of two separate risks,inherent risk and control risk. When the assessed level of control risk is increased , the risk of materialmisstatement also increases, and detection risk must be decreased to achieve an overall audit risk level thatis substantially the same as the planned audit risk level.

ekkarill92 answered 2 years ago

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