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Audit Risk Model Relationships Explained

The document outlines the audit risk assessment process, including determining inherent risk, control risk, and detection risk. It notes key risk factors are considered like the client's industry, personnel, and prior audit results. The audit evidence is assessed and risks reevaluated to determine if the achieved audit risk accepts the planned risk and ensures an effective audit.

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Nathaniel Bryce St. Martin
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6 views1 page

Audit Risk Model Relationships Explained

The document outlines the audit risk assessment process, including determining inherent risk, control risk, and detection risk. It notes key risk factors are considered like the client's industry, personnel, and prior audit results. The audit evidence is assessed and risks reevaluated to determine if the achieved audit risk accepts the planned risk and ensures an effective audit.

Uploaded by

Nathaniel Bryce St. Martin
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

RISK FACTORS

RISKS

EVIDENCE

AUDIT OUTCOME

* Level of reliance by external users * Probability of financial failure * Character or integrity of key personnel

Acceptable Audit Risk

Note: Comparing acceptable audit risk to achieved audit risk determines whether the audit was effective or efficient.

SET ASSESS SOLVE

* Nature of client's industry / business * Character or integrity of key personnel * Results of prior audits and audit history
D D I Planned Audit Evidence D I DO THE WORK

Reassessed

RE-ASSESS

Inherent Risk D Actual Audit Evidence I Acheived Detection Risk D Achieved Audit Risk D

* Amount and types of related party


relationships and transactions

* Client motivation and incentives * Complexity and routineness of


transactions

Assessed Inherent Risk

Planned Detection Risk I

* Level of subjective judgment required by


accounting standards theft

* Degree to which assets are susceptible to

Reassessed

Control Risk

* Effectiveness of internal controls * Planned reliance on internal controls

Assessed Control Risk

D - Direct Relationship
(i.e., arrow indicates that an increase in one leads to an increase in the other)

I - Inverse Relationship
(i.e., arrow indicates that an increase in one leads to a decrease in the other)

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