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The Audit Risk Model Simulator

Audit Risk is the risk that an auditor expresses an inappropriate opinion on materially misstated financial statements. Use this tool to see how auditors manage this risk.

Audit Risk = Risk of Material Misstatement × Detection Risk

(AR = RMM × DR) or (AR = IR × CR × DR)

1. Assess Risk of Material Misstatement (RMM)

The auditor assesses these risks, which exist independently of the audit. Adjust the sliders to simulate different client risk profiles.

Inherent Risk (IR): %

Susceptibility of an assertion to material misstatement, assuming no related controls.

Control Risk (CR): %

Risk that a material misstatement will not be prevented or detected by the client's internal controls.

2. Determine Detection Risk (DR)

Based on the assessed RMM, the auditor sets an acceptable level of Detection Risk. This is the risk that the auditor's own procedures will fail to detect a material misstatement.

Risk of Material Misstatement (RMM):

Acceptable Detection Risk (DR):

Note: Overall Audit Risk is held constant at a low level (e.g., 5%) as required by professional standards.

This simulation is for educational purposes and is based on the provided document. It simplifies complex auditing standards and should not be used for professional audit decisions. Always refer to official GAAS and PCAOB guidance.