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Detection, Inherent & Control Risk


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#1 ramzacless

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Posted 02 September 2013 - 03:37 PM

Can someone explain what is the relationship between Detection, Inherent & Control Risk?

When Detection increase, how it impact other two.

When Detection decrease, how it impact other two.

 

When Inherent increase, how it impact other two.

When Inherent decrease, how it impact other two.

 

 

When Control increase, how it impact other two.

When Control decrease, how it impact other two.

 



#2 Manali

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Posted 06 September 2013 - 08:06 PM

There is inverse relationship between Risk of material misstaement(RMM) and detection risk.

 

Audit risk = RMM (which includes Inherent risk & Control risk) + detection risk

 

So, The answer of your question is that

 

1.

When Detection increase, how it impact other two. - Other two decrease

When Detection decrease, how it impact other two. - Other two increase

 

If, Inherent risk goes up or down which dosn't change the level of control risk, same way control risk flactualtion dosen't change the level of inherent risk

 

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#3 CaptainNemo

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Posted 19 September 2013 - 05:51 AM

Could someone provide something more in depth. I mean, I thought I understood this part of the exam, but I got my score and I know I messed up.

I remember I could not quite get it in terms of lets say:

Firm is entering into derivatives contract, they hire a new derivatives manager, but the manager does not have experience.

How does a scenario like this affect IR x CR x DR?

I am using CPAexcel and have googled simulations that deal with this specifically. I am really frustrated after getting my score. I want to make sure I have this part of the exam down cold.

Thanks for any and all help.