Audit Risk Model
From Open Risk Manual
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Definition
The Audit Risk Model determines the total amount of Risk associated with an Audit of Financial Statements, and describes how this risk might be managed. The conceptual relation posits:
The factors are respectively:
- Control Risk. The risk caused by the failure of existing controls or the absence of controls, leading to incorrect financial statements.
- Detection Risk. The risk caused by the failure of the Auditor to discover a material misstatement in the financial statements.
- Inherent Risk. The risk caused by an error or omission arising from factors other than control failures. This risk is most common when accounting transactions are quite complex, there is a high degree of judgment involved in accounting for transactions, or the training level of the accounting staff is low