Audit and Assurance Practice Exam 2026 – The Complete All-in-One Guide for Exam Success!

The audit risk model is foundational in understanding the components that contribute to the overall audit risk faced by auditors. The correct components include inherent risk, control risk, and detection risk.

Inherent risk refers to the susceptibility of an assertion to a misstatement, assuming there are no related internal controls. This risk reflects the nature of the balance or transaction and can be influenced by factors like the complexity of transactions or the judgment involved in accounting estimates.

Control risk is the risk that a misstatement could occur in an assertion and not be prevented or detected by the entity's internal controls. This highlights the effectiveness of the organization’s control environment and its systems.

Detection risk is the risk that the procedures performed by the auditor will not detect a material misstatement that exists in an assertion. This emphasizes the auditor's responsibility and the nature, timing, and extent of audit procedures that may be inadequate to identify errors or fraud.

Together, these three components help auditors assess risk levels in the audit process, allowing them to design effective audit strategies and procedures tailored to specific risks. The correct recognition of these components is essential for ensuring a comprehensive approach to risk assessment in audits.