[Dan T]

So I just signed up to ask this..

I have a problem with understanding detection risk, it is the chance that the auditor wont find a material misstatement..so why would decreasing substantive tests help.

Example: say DR is at .99.. that means there is a 99% chance that the auditor wont find a material misstatement so wouldn’t more tests be necessary??? Basically saying you have a 1% chance of finding a material misstatement if it exists, so wouldnt you need to test more to try and find one??

Am I not looking at this the right way? Any advice would be appreciated

AUD - 75 ☺
FAR - 65, 71, 70, 77 ☺
BEC - 80 ☺
REG - 73, 66, 79 ☺ 2/28/15

Done!

[stoleway]

@Work_Study_Sleep….Im also studying auditing and it gets a little bit confusing but I will give you my take on this.

Technically RMM is inversely related to DR which means that the lower the RMM the higher the DR. If your DR is higher then you have to know that the risk of material mistatement is very low which is a good thing. In this case you can reduce the extent of your substantive test.

If RMM is high then that means that your DR will be very low (which is not good) and you have to increase your substantive test to obtain more evidence and basically have shift your testing towards the end of the balance sheet date.

Im not an AUD guru but I think using and understanding the inverse relation will help you more.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

@Work_Study_Sleep….Im also studying auditing and it gets a little bit confusing but I will give you my take on this.

Technically RMM is inversely related to DR which means that the lower the RMM the higher the DR. If your DR is higher then you have to know that the risk of material mistatement is very low which is a good thing. In this case you can reduce the extent of your substantive test.

If RMM is high then that means that your DR will be very low (which is not good) and you have to increase your substantive test to obtain more evidence and basically have shift your testing towards the end of the balance sheet date.

Im not an AUD guru but I think using and understanding the inverse relation will help you more.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[jeff]

A little blurb from the ninja notes:

Detection Risk (DR)

o Will the auditor fail detect a material misstatement?

o Auditor CAN control DR

-Do more testing at year-end

-Increase substantive testing

o Less Acceptable DR = Run More Substantive Tests

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[jeff]

A little blurb from the ninja notes:

Detection Risk (DR)

o Will the auditor fail detect a material misstatement?

o Auditor CAN control DR

-Do more testing at year-end

-Increase substantive testing

o Less Acceptable DR = Run More Substantive Tests

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[Dan T]

Ah thanks guys…

The statement about it being inversely related to RMM helps understand the concept…The definition itself was throwing me off. But I'll just look at it as an inverse realtionship to RMM and won't think about it anymore lol

AUD - 75 ☺
FAR - 65, 71, 70, 77 ☺
BEC - 80 ☺
REG - 73, 66, 79 ☺ 2/28/15

Done!

[Dan T]

Ah thanks guys…

The statement about it being inversely related to RMM helps understand the concept…The definition itself was throwing me off. But I'll just look at it as an inverse realtionship to RMM and won't think about it anymore lol

AUD - 75 ☺
FAR - 65, 71, 70, 77 ☺
BEC - 80 ☺
REG - 73, 66, 79 ☺ 2/28/15

Done!

[mena je twa]

Work – study – sleep

If Internal control is good , Reliance placed on IC is a sure yes, then you decrease substantibe testing

If IC is bad, Reliance placed is a sure no, then you increase substantive testing.

This is a basic rule, just follow on these line…..

Licensed CPA, Texas - 2012

[mena je twa]

Work – study – sleep

If Internal control is good , Reliance placed on IC is a sure yes, then you decrease substantibe testing

If IC is bad, Reliance placed is a sure no, then you increase substantive testing.

This is a basic rule, just follow on these line…..

Licensed CPA, Texas - 2012

[Anonymous]

I think the key to working problems with detection risk is to think detection risk ACCEPTED, not just detection risk.

[Anonymous]

I think the key to working problems with detection risk is to think detection risk ACCEPTED, not just detection risk.

[mtaylo24]

IR and CR are independent of the audit

DR is determined by the auditor because it is the risk that the auditor will fail to discover a mistatement.

DR is up because you rely on controls and other factors instead of digging in and doing substantive testing.

DR is down because you do more substantive testing

That is why DR and Substantive testing are inverse.

CPA (2017)

REG:  75

BEC:  76

FAR:  77

AUD: 78

 

CMA (2019)

P1: 380

P2: 360

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[mtaylo24]

IR and CR are independent of the audit

DR is determined by the auditor because it is the risk that the auditor will fail to discover a mistatement.

DR is up because you rely on controls and other factors instead of digging in and doing substantive testing.

DR is down because you do more substantive testing

That is why DR and Substantive testing are inverse.

CPA (2017)

REG:  75

BEC:  76

FAR:  77

AUD: 78

 

CMA (2019)

P1: 380

P2: 360

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Myeble]

Work_Study_Sleep,

you should get the Nindja audio for Audit. Jeff explains it very well.

[Myeble]

Work_Study_Sleep,

you should get the Nindja audio for Audit. Jeff explains it very well.

[wizards8507]

mtaylo24 and CPATaxed are spot on.

You have the cause and effect relationship backwards. You're thinking “there's lots of risk so we need to test more.” More risk = more testing. But it's the opposite. You do more testing in order to lower the risk. More testing = less risk.

NY CPA

[Author]

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