Professor Farhat , I have doubt on MCQ in the video. Inherent Risk and Detection risk inversely proportional? In the MCQ , IR and DR directionally proportional , could you please explain?
You need to look at Detection risk as the level of risk the auditor is willing to accept. If inherent and control risks are considered to be high, the Auditor ASSESSES the detection risk to be high (the question in MCQ asks about the impact of Auditor's ASSESSMENT). If inherent and control risks are considered to be high, this NECESSITATES auditor to set the detection risk to an acceptably low level to keep the overall audit risk at a reasonable level. To lower detection risk, an auditor will take steps to improve audit procedures through targeted audit selections or increased sample sizes. So, for high Risk of Material Misstatement (IR X CR), the Auditor has to lower the Detection Risk (inverse relation).
