Unit 9 Listen and Read:
Audit risk model
There are two distinct concepts of audit risk - the acceptable level of audit risk and the achievable level of audit risk. The acceptable level of audit risk [AR*] is the risk of a material financial statement misstatement that is acceptable to the auditor. The achievable level of audit risk [AR] is the risk the audited financial statements will contain a material misstatement. (AR is an ex ante concept and thus it is referred to as the achievable level of risk rather than an ex post concept of an achieved level of risk). The acceptable audit risk [AR*] is estimated by reference to the expected reliance on the audited financial statements. The greater the expected reliance, the lower is the acceptable level of audit risk. The achievable audit risk [AR] is estimated by reference to the ex ante value of the components of the audit risk model. The aim of an auditor is to achieve an acceptable level of audit risk; to achieve a level of audit risk that is acceptable to the auditor.