25. In connection with the preliminary planning for the audit of XYZ Company, the auditors have determined that they are willing to accept an overall risk of material misstatement (audit risk) of 8% for the inventory account. Further, they have determined that overall inherent risk is 75%. In addition, they believe that the internal control system will detect material misstatements 80% of the time and fail to detect 20% of the time. Based on these facts, (and using the audit risk equation) what amount should the auditors set for detection risk?

Detection risk ____

Assume that you have performed tests of internal controls of XYZ Company (above) and have determined that the internal control system will detect material misstatements 70% of the time. Will this result require an increase, decrease or the same amount of substantive testing?

Substantive testing _______

After setting the planned inherent risk at 75%, the field staff auditors discovered that the industry in which the client operates has been severely disrupted by technological changes that affect its inventory offerings. Please propose a revised inherent risk percent that reflects this new information.

__________________%