[evp490]

I am having trouble understanding the relationship between inherent, Control, and Detection Risk.

I understand that Detection Risk has an inverse relationship to both Inherent and Control. So by the equation:

AR=IRxCRxDR

the Audit Risk stays constant at (let’s say)10, and the Inherent Risk increases so that means the Detection Risk must decrease to keep the equation equaling a 10 Audit Risk. But my question is what happens to Control Risk? Does that mean that any time Inherent Risk increase/decreases, Control Risk stays unchanged?

Thanks!

[Anonymous]

I have to admit I can't remember the details of this, so I'm mostly basing my reply off your post…so double-check against the materials, but…

Based on what you said in the first paragraph and the formula (AR=IRxCRxDR), if any one increases, then in order for AR to remain the same, either or both of the others can decrease; alternatively, 2 could increase, and the 3rd could decrease enough to compensate.

In reality, it's not simple math, despite the formula being used to illustrate it. However, your statement was that DR has an inverse relationship to IR and CR. So, by that statement, when DR decreases, both IR and CR could increase to compensate, or just one, or if neither of them changed, then AR would decrease.

Again, this is simply based off your statements. However, in your 2nd paragraph when you were asking if CR stays unchanged, based on your 1st paragraph there is the potential for CR to stay unchanged, or IR to stay unchanged, or both to change. So, sometimes CR might remain unchanged, but not necessarily always.

[Author]

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