RMM (AUD)

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    Topic
  • #1768235
    md27
    Participant

    Hi All,

    Quick question as I have been studying for AUD. Obviously, the audit risk formula is audit risk = RMM X DR, with RMM being IR X CR. Can somebody please explain what happens to detection risk if the IR is high while CR is low? What effect would that have on our substantive testing? I know that a high RMM means more substantive work and a low DR, but if IR is high and CR is low, what does that mean for the RMM? Would that be considered high or low?

    AUD - 86
    BEC - 81
    FAR - NINJA in Training
    REG - NINJA in Training
    Working on it...
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  • #1768450
    maplewood
    Participant

    I don't think I've ever seen a question where IR and CR are assessed differently. The MCQs tend to have IR and CR both assessed high or low.

    However, if you have a high IR and a low CR, I think substantive testing would be at a “moderate” level. With a high IR, misstatements will occur, but with a low CR, those misstatements will be detected.

    I used the charts on this webpage to help me out during my exam. Audit Risk Model

     

    AUD - 75

    REG - 76

    BEC - 85

    FAR - 81

    #1768490
    DoubleBogey
    Participant

    CR and DR are directly contingent of each other. Generally, a high IR would result in a more in-depth control system, which in itself contains risk. But I agree with Maplewood, I've only seen DR asked in reference to RMM or just CR. High IR * Low CR should= Medium RMM and a DR somewhere in the median as well: it neither increases nor decreases substantive testing.

    AUD - 92
    BEC - 89
    FAR - 79
    REG - 84
    "I press on to reach the end of the race and receive the heavenly prize for which God, through Christ Jesus, is calling us." Philippians 3:14
    #1773217
    ct516
    Participant

    I believe the answer would be “not enough information to determine” or something alone those lines.

    AUD - NINJA in Training
    BEC - 83
    FAR - 76
    REG - 76
    ONE MORE
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