Final answer:
In an audit, if acceptable audit risk is set at low and the assessed risk of material misstatement is high, the detection risk must be set at a lower level to balance the overall audit risk. Auditors do this by conducting more extensive audit procedures to increase the likelihood of detecting material misstatements.
Step-by-step explanation:
When conducting an audit, auditors assess three types of risk which comprise the Audit Risk Model: inherent risk, control risk, and detection risk. The inherent risk and control risk together constitute the assessed risk of material misstatement. Acceptable audit risk is the level of risk the auditor is willing to accept that the financial statements may contain a material misstatement after the audit is completed and an unqualified opinion has been issued.
If acceptable audit risk is set at low, it means the auditor wants to keep the overall audit risk also low. When the assessed risk of material misstatement is high, the auditor must respond by setting a lower detection risk to reduce the overall audit risk. This means the auditor must perform more extensive substantive testing and other audit procedures to catch any misstatements, as the likelihood of a material misstatement is higher.