Audit risk model
The audit risk model says audit risk equals the risk of material misstatement times detection risk. Auditors assess the first and lower detection risk by doing more or better tests.
The risk of material misstatement combines inherent risk and control risk, which the auditor assesses but cannot change. When that risk is high, acceptable detection risk is low, so the auditor gathers more and stronger evidence.
Example. Inventory at a fashion retailer has high inherent risk from obsolescence, so the auditor attends the count and tests net realizable value with more samples.
By Binod Raj Singh, CPA (licensed in Montana) · Updated for the 2026-2027 exam windows · Last updated 2026-11-05