Tables for the estimation of the value of DR*,
given estimated evaluations of AR*, IR and CR

The audit risk model states that AR = IR x CR x DR. Given estimated values of IR and CR and substituting the value of AR* for AR (as the achievable level of audit risk [AR] must be equal to or less than the acceptable level [AR*]), the model may be used to determine the maximum acceptable level of detection risk [DR*].

There are two stages in the estimation of the acceptable level of detection risk. Firstly, given estimated values of inherent risk [IR] and control risk [CR], determine the risk of material misstatement [RMM] by reference to the first table (below). (If the combined inherent and control risk, i.e. the RMM, has already been evaluated, proceed to the second table below.)

Risk of material misstatement [RMM] given inherent risk [IR] and control risk [CR]

Inherent risk [IR] Control risk [CR]
Low Moderate High
Low LOW LOW - MOD MOD
Moderate LOW - MOD MOD MOD - HIGH
High MOD MOD - HIGH HIGH

For example, if IR is moderate and CR is low, then, using the table above, the risk of material misstatement [RMM] is LOW - MOD.

Secondly, the RMM may be used to determine, in the next table (below), the acceptable level of detection risk [DR*}, given the acceptable level of audit risk [AR*].

Acceptable level of detection risk [DR*], given the acceptable level of audit risk [AR*] and the risk of material misstatement [RMM]

Acceptable level of
audit risk [AR*]		 Risk of material misstatement (RMM = IR x CR)
High Mod - high Moderate Low - moderate Low
Very low VERY LOW VERY LOW LOW MOD HIGH
Low VERY LOW LOW MOD HIGH VERY HIGH
Moderate LOW MOD HIGH VERY HIGH VERY HIGH

For example, if the risk of material misstatement [RMM] is low - moderate and the acceptable level of audit risk [AR*] is low, then the maximum acceptable level of detection risk [DR*] is HIGH.

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