2. Your firm uses the audit risk model, AR = RMMp * DR, in its decision support computer software for planning tests of accounting cycles. The firms calculate DR based on AR and RMMp. RMMp is a preliminary assessment of the risk of material misstatement that is based on the DESIGN effectiveness of controls That is, you haven't tested the control to see if they are actually working, but you have made an assessment of how well-designed they are. The firm's software asks you to specify the design effectiveness in terms of one of the following: WEAK, MODERATE, or STRONG

a. Suppose, for example, that MODERATE implies that 15% <= RMMp < 30%. If you enter MODERATE when you are planning, the software calculates DR assuming that RMMp = 15%, instead of 30%. Briefly, explain why.

b. If RMMp = 15% and AR = 5%, what would planned DR be? Calculate it in the cell below.

c.The literature states that the audit is dynamic and can be revised as the audit progresses Suppose that the auditors' tests of controls [to determine operating effectiveness] reveal that RMM = 5% What does this imply for the DR calculated in 1B above?