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AU-C 330 and 315 are the centerpiece of the risk assessment standards. Together, these two sections provide detailed guidance on how to apply the audit risk model described in Section 320. That model describes audit risk as:

AR = RMM × DR

where AR is audit risk, RMM is the risk of material misstatement, and DR is detection risk. The RMM is a combination of inherent and control risk. Although the standard describes a combined risk assessment, the auditor may perform separate assessments of inherent and control risks.

AU-C 330 provides guidance on the design, performance, and evaluation of further audit procedures, which consist of tests of controls (an element of RMM), and substantive procedures, which are related to detection risk.

The assessment of the risk of material misstatement serves as the basis for the design of further audit procedures. Further audit procedures should be clearly linked and responsive to the assessed risks.

To reduce audit risk to an acceptably low level, the auditor should:

 Determine overall responses to address the assessed risks of material misstatement at the financial statement level, and

 Design and perform further audit procedures responsive to the assessed risks of material misstatement at the relevant assertion level.

(AU-C 330.05–.06)

NOTE: Further audit procedures consist of either tests of controls or substantive tests. Often, a combined approach using both tests of controls and substantive procedures is an effective approach.

Audit procedures performed in previous audits and example procedures provided by illustrative audit programs may help the auditor understand the types of further audit procedures that can be performed. However, prior-year procedures and example audit programs do not provide a sufficient basis for determining the nature, timing, and extent of audit procedures to perform in the current audit. The assessment of the risk of material misstatement in the current period is the primary basis for designing further audit procedures in the current period.