How does an inverse relationship between Detection Risk (DR) and Risk of Material Misstatement (RMM) affect audit work?

When considering the relationship between Detection Risk (DR) and Risk of Material Misstatement (RMM) in an audit context, it is fundamental to understand how increasing RMM influences the auditor's responsibilities.

In situations where there is a high risk of material misstatement, it signifies that the likelihood of significant errors or fraud in financial statements is elevated. To address this heightened risk effectively, auditors must design and implement more comprehensive and extensive audit procedures. This often means increasing the amount and depth of testing, which may include additional substantive tests, more detailed analytical procedures, or more extensive inquiries with management.

As RMM rises, auditors need to reduce Detection Risk, which is the risk that the audit procedures will not detect material misstatements. Achieving this requires performing more thorough work to ensure that sufficient appropriate audit evidence is gathered to support the financial statements' assertions adequately. Thus, increased RMM necessitates greater audit effort to mitigate this risk appropriately and ensure a high level of assurance in the audit conclusion.