Inherent risk and planned detection risk are inversely related; i.e., as inherent risk increases, planned detection risk should decrease, ceteris paribus.

Question

Quizplus · Accepted Answer

This statement is true according to the risk assessment formula, where Risk of Material Misstatement = Inherent Risk x Control Risk. Therefore, if the inherent risk is high, the risk of material misstatement is also high, and the planned detection risk (which is the inverse of the risk of material misstatement) must be low to achieve an acceptable level of overall audit risk.

Inherent Risk and Planned Detection Risk Are Inversely Related; I