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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

  1. 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_______

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