Question

If audit risk is set at low, inherent risk is medium, and control risk is high, what should auditors set for detection risk?

1) Medium
2) Low
3) High
4) Very low

Answer 1

The auditors should set the detection risk at a medium level.

Step-by-step explanation:

The answer to the question is 1) Medium.

The detection risk is the risk that auditors fail to detect material misstatements in the financial statements. It is the opposite of the combined level of audit risk, inherent risk, and control risk. When audit risk, inherent risk, and control risk are all set at low, medium, and high respectively, auditors should set detection risk at a medium level to maintain an appropriate balance.

Setting detection risk too low may lead auditors to overlook material misstatements, while setting it too high may result in excessive procedures that are not cost-effective.