The audit risk model states that audit risk is a function of which three components?
Answer and explanation
Correct answer: D. Inherent risk, control risk and detection risk
- Step 1: The model is audit risk = inherent risk × control risk × detection risk.
- Step 2: These three components are assessed or set by the auditor.
Answer
Inherent risk, control risk and detection risk.
Why not the others: Those are categories of business risk, not parts of the audit risk model. Materiality, sampling and engagement risk are separate concepts. Market risk is a business risk that does not feature in the audit risk model.
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