Question

Which of the following statements represent the appropriate directional relationships between the concepts of inherent risk, control risk, audit risk, and detection risk?a. As inherent risk goes up, audit risk goes up.b. As inherent risk goes up, audit risk goes down.c. As control risk goes up, detection risk goes up.d. As control risk goes up, inherent risk goes down.

Answer 1

Answer:

b. As inherent risk goes up, audit risk goes down.

Explanation:

Inherent risk is the risk which is present before applying any control, and audit risk is the that the auditor expresses inappropiate audit opinion when the financial statements are materialy misstated.

Thus, when the inherent risk is high, the auditor keeps the audit risk at low level to perform more subtantative procedures.