Auditing Top-Ten List: The Audit Risk Model

The Audit Risk Model CPE webcast explores the core formula that drives every financial statement audit—audit risk = inherent risk × control risk × detection risk—and shows how to use it as the backbone of your audit pipeline. Focusing on nonpublic entities, Sunish Mehta walks through how to move from risk assessment procedures to a targeted response that balances effectiveness (standards compliance and quality) with true efficiency in budgets, timing, and realization.

You’ll see how SAS 145 reshapes inherent risk assessment, including the spectrum of inherent risk, “not relevant” assertions, and the stand-back requirement, and why inherent and control risk must be evaluated separately before you set the risk of material misstatement at the financial statement and assertion levels. Along the way, practical examples (revenue vs. prepaid assets, PP&E and equity, small-firm internal controls, and the trade-off between testing controls and pure substantive work) show how to link assessed risks to the nature, extent, and timing of your procedures so you can consciously manage detection risk instead of defaulting to line-item auditing.