Audit risks for particular accounts and disclosures can be conceptualised in a model such that Audit risk (AR) = Inherent risk (IR) x Internal control risk (CR) x Detection risk (DR). Using this audit risk model as a framework and decide whether the auditors conclusion in each of the independent situations below is appropriate.

Jim, a CPA, has just completed a thorough evaluation and testing of the internal controls of an audit client, Merry Ltd. up to 30 November 2021. Due to the fact that not a single error was found during his review and testing of the internal controls, Jim concluded that the control risk should be zero. Merry Ltd. has its financial year ending on 31 December.