Your audit firm uses the Audit Risk Model to plan detection risk and audit procedures for tests

Question:

Your audit firm uses the Audit Risk Model to plan detection risk and audit procedures for tests of details. The audit you are working on is a high profile client. Therefore, for risk assessment and planning your firm uses an audit risk of 3% for this engagement. In assessing the receivable accounts, you decide that an inherent risk of 50% is appropriate. Your history with the company indicates that its ICFR is good, and there have been no problems with ICFR for in the past. You set control risk at 20%. You plan to perform analytical procedures, but there have been changes both in the overall economy and the company’s credit policies and price structure, so you don’t think you can rely on trends to provide you with much assurance. You use an AP risk of 80%.

Required:
Using the Audit Risk Model, what is your planned detection risk for tests of details for do the various risk estimates mean?
Are the risk estimates used reasonable?
What does this planned detection risk for test of details mean for your audit tests?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...