ACCA AA · Chapter 6 · Question 4 of 11
Using the audit risk model AR = IR x CR x DR, the auditor wants to restrict audit risk to 5%. Inherent risk is assessed at 80% and control risk at 50%. What is the maximum acceptable detection risk?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 12.5%
Explanation
Detection risk = AR / (IR x CR) = 0.05 / (0.80 x 0.50) = 0.05 / 0.40 = 0.125, i.e. 12.5%. Multiplying all three figures gives 2%, which confuses the formula. Using 6.25% ignores control risk (0.05 / 0.80), and 40% is simply IR x CR.
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