Activity Based Risk Evaluation Model of Auditing

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Tabular framework

AUDIT ACTIVITIES	AUDIT STAGES
	Client acceptance/ retention	Audit planning	Control testing	Substantive testing	Opinion formulation
Planning	Strategic planning	Tactical planning	Operational planning	Operational planning	Operational planning
Evidence gathering	Preliminary knowledge of business	Detailed knowledge of business	Effectiveness of control procedures	Extent of misstatements in account balances	Consistency with knowledge of business
Evidence evaluation	AR*1 ~ AR1	DR*2	DR*3	AR*4 ~ AR4	AR*5 ~ AR5
Decision making	Accept/retain (or reject/ relinquish)	Audit approach	Continued reliance on controls	Conclusion on individual account balances	Audit opinion

Note that in the above table (and elsewhere in this site) subscripts are used to indicate the point of time at which the evaluation of audit risk and/or its components are evaluated; a tilde sign ( ~ ) between risk components is used to signify a comparison between the evaluation of those components; and an asterisk is used to distinguish between:

• the achievable audit risk [AR] and the acceptable audit risk [AR*] and
• the achievable detection risk [DR] and the acceptable detection risk [DR*].

Thus, AR₁ ~ AR*₂ refers to the comparison of the achievable audit risk evaluated in the first audit stage (the client acceptance/retention stage) with the acceptable audit risk evaluated in the second audit stage (the audit planning stage).

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