The audit risk model is as follows:aar = ir x cr x pdrwhere: aar = acceptable audit risk ir = inherent risk cr = control risk pdr = planned detection riskacceptable audit risk - a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued.planned detection risk - a measure of the risk that audit evidence for a segent will fail to detect misstatements exceeding a tolerable amount, should such misstatements exist.inherent risk - a measure of the auditors assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control.control risk - a measure of the auditors assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will not be prevented or detected by the clients internal controls.sas107 (au 312) notes that the combination of inherent risk and control risk reflect the risk of material misstatement. (lo #9-6)
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