According to the audit risk model, if inherent risk is HIGH and control risk is HIGH, detection risk must be LOW to yield audit risk LOW.

• A. HIGH
• B. LOW
• C. MEDIUM
• D. CANNOT DETERMINE

Answer: (B)

The key idea here is the audit risk model: AR = IR × CR × DR. To keep overall audit risk at a low level, the product must be small. If inherent risk is high and control risk is high, their product is already high, so the only way to bring the overall risk down to a low level is to make detection risk low. Detection risk is the chance that the auditor’s procedures fail to uncover a material misstatement, so lowering it means gathering more persuasive evidence and performing more robust testing. If detection risk were not low, the overall risk would remain higher than the desired low level despite the high IR and CR. So, the required level is low.