Abstract

Purpose. This paper goes into detail on the advantages of a risk-based approach to auditing financial statements. Methodology. The authors propose a model of the risk estimation process during an audit, taking into account limitations, and put forth the rationale for developing a model of combined risk estimation during audit proceedings, a description of the methodological foundations of the process, a description of the methodological tools applied. Findings. The authors propose the procedure for estimating the risk of deliberate considerable falsification of accounting reporting. Originality. The model of combined risk estimation during audit proceedings is original. In our opinion, the application of a formal methodological instrument will reap the following benefits: simplification of the procedure of collecting information concerning risks within the audit group before discussing the list of identified risk factors; reduced effort required to identify risks; increased audit efficiency, performed on the basis of the risk-oriented approach; coverage of all features confirming the risk of considerable falsification of accounting reporting; a greater level of preparedness among the audit group to discuss considerable falsification risk factors affecting accounting reporting undergoing audit proceedings. DOI: 10.5901/mjss.2015.v6n3s6p241

Highlights

  • One of the key processes that characterises modern-day global economic development is the increased symmetry in reporting of information on the results of the activities of joint-stock companies (JSCs), involving the funds of an unlimited number of people

  • Since the early 21st century the audit profession has seen a considerable decline in prestige, with public trust in auditors having been damaged for a number of reasons, in particular:

  • – inherent difficulty of detecting, using traditional approaches applied within the audit process, where accounting reporting has been falsified as a result of fraudulent actions on the part of management (e.g. Dodge, 1990)

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Summary

Introduction

One of the key processes that characterises modern-day global economic development is the increased symmetry in reporting of information on the results of the activities of joint-stock companies (JSCs), involving the funds of an unlimited number of people. The aim of this process is to increase the awareness of the average informed user up to a level that enables him/her to make reasonable investment decisions on the basis of annual accounting reporting. The most important and urgent task facing auditors is to develop new methods for estimating the risk of considerable falsification of accounting reporting arising from the fraudulent actions on the part of management in issuing the reporting

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