Which of the following describes the components of the audit risk model that are used to describe the risk of material misstatement (RMM)?
A)AAR / DR
B)IR × CR
C)IR × DR
D)CR × DR

Question

Quizplus · Accepted Answer

The components of the audit risk model used to describe RMM are inherent risk (IR) and control risk (CR), which are multiplied together to calculate RMM (IR × CR). AAR / DR is used to calculate the preliminary judgement about materiality, while DR is used to calculate the detection risk. Option C (IR × DR) and D (CR × DR) are not correct because detection risk is not a component of RMM, but rather a factor that is set by the auditor to achieve the desired level of audit risk.

Which of the Following Describes the Components of the Audit