Question

Is a large risk good or bad for inherent and control risk? How does the audit change with regard to these risks?

Answer 1

Audit Risk consists of 3 risk which are:
(i)Inherent Risk
(ii)Control Risk
(iii)Detection Risk
Audit Risk =Inherent Risk X Control Risk X Detection Risk
Out of this Ingherent and Control risk together determine the level at which Detection risk is to be kept
If the Inherent and Control risk are higher then the the auditor may set the detection risk at a lower level by increasing the sample size
If the Inherent and Control risk are lower then the the auditor may set the detection risk at a higher level by decreasing the sample size
So it can be said that the level of Inherent risk and Control risk determines the level of detection risk to be applied and the level of sampling
is also decided based upon the level of detection risk