Audit Risk Model

The Audit Risk Model helps auditors evaluate the likelihood that financial statements may be flawed. It combines three key factors: inherent risk (the chance of errors without any controls), control risk (the chance that a company’s internal controls won’t catch errors), and detection risk (the chance that an auditor won't find significant issues). Auditors assess these risks to determine how much testing they need to perform to ensure that the financial statements are accurate. The goal is to minimize the overall risk of undetected misstatements in financial reporting.