Audit Risk Assessment Research Articles

Risk Assessment Using Predictive Analytics

Purpose: This research paper uses design science methodology to develop and evaluate a predictive analytics model for audit risk assessment. This research therefore contributes to improving the accuracy and efficiency of audit risk assessment through predictive analytics. Theoretical framework: This study involved developing and evaluating a predictive analytics model for audit risk assessment, with it being tested during the audit of a publicly listed Saudi company. Design/methodology/approach: This study adopted the design science research methodology, which is a problem-solving approach that involves the creation of innovative solutions to practical problems. This methodology is particularly relevant for developing and evaluating predictive analytics models for audit risk assessment, because it provides a structured, systematic approach to the problem-solving process. In the context of this research paper, the design science research methodology was used to develop and evaluate a predictive analytics model for audit risk assessment. Findings: The proposed predictive analytics model for audit risk assessment was found to be an effective tool for helping auditors to make informed decisions based on data analysis. The model accurately identifies high-risk factors associated with an organization, provides valuable insights for decision-making, and highlights areas of potential risk that may require further investigation. Research, practical & social implications: Future research could explore several areas related to predictive analytics in audit risk assessment. One important area to investigate would be the impact of using predictive analytics on audit quality. The ethical implications of using predictive analytics in audit risk assessment and the potential biases that could affect a model’s accuracy are also important areas to explore. Originality/value: This paper helps improve our understanding of how predictive analytics can be effectively applied to audit risk assessment and how design science methodology can be used to develop and evaluate predictive analytics models. Furthermore, this study provides insights about the effectiveness of predictive analytics for improving audit risk assessment, thus contributing to the existing literature on the topic.

Доказательное и профессиональное суждение в аудите

The article proposes and substantiates new formulations of the concepts of professional and evidence-based judgment. The concept of the application of such judgments when working with numerical estimates is developed. The usefulness of using the method of expert assessments in the audit is shown. Time series are built — in current and comparable prices — of average revenues for audits for audit organizations in general and in three sections: large-scale, regional, type of economic entities. Considered — both in general terms and with examples — the possibility of using the constructed time series through a combination of professional and evidence-based judgments when making various decisions in the audit. Suggestions for improving this combination are formulated. Th e possibility of combining professional and evidence-based judgments in assessing audit risks and in determining the size of audit samples is shown.

The Research of Preliminary Annual Results Quality, Nature of Property Right and Audit Fee

Based on the gradual normalization of voluntary performance letter disclosure, this paper chooses the data of Chinese main board-listed companies from 2013 to 2020 and uses multiple regression analysis to explore the impact of preliminary annual results quality on audit fees and the regulating mechanism of property rights. The results show that the quality of preliminary annual results can assist auditors to assess audit risk levels, and then affect audit fees. In addition, in the periodic regression analysis, there is a significantly positive correlation between the preliminary annual results material misstatement and audit fee. By comparison, private enterprises have a more significant positive correlation between material misstatement and audit fees.

Big data analytics and auditor judgment: an experimental study

PurposeAuditors’ skills and knowledge of data analytics and big data can influence their judgment at the audit planning stage. At this stage, the auditor will determine the level of audit risk and estimate how long the audit will take. This study aims to test whether big data and data analytics affect auditors’ judgment by adopting the cognitive fit theory.Design/methodology/approachThis was an experimental study involving 109 accounting students as participants. The 2 × 2 factorial design between subjects in a laboratory setting was applied to test the hypothesis.FindingsFirst, this study supports the proposed hypothesis that participants who are provided with visual analytics information will rate audit risk lower than text analytics. Second, participants who receive information on unstructured data types will assess audit risk (audit hours) higher (longer) than those receiving structured data types. In addition, those who receive information from visual analytics results have a higher level of reliance than those receiving text analytics.Practical implicationsThis research has implications for external and internal auditors to improve their skills and knowledge of data analytics and big data to make better judgments, especially when the auditor is planning the audit.Originality/valuePrevious studies have examined the effect of data analytics (predictive vs anomaly) and big data (financial vs non-financial) on auditor judgment, whereas this study examined data analytics (visual vs text analytics) and big data (structured and unstructured), which were not tested in previous studies.

ANALYSIS OF FACTORS IN IMPLEMENTING RISK-BASED PERFORMANCE AUDITS THAT AFFECT FIRM VALUE

As an external audit institution for the management and accountability of state finances, BPK is responsible for conducting financial, performance, and audit with a specific objective, including in BUMNs. However, BUMNs' financial reports are audited by a public accounting firm (KAP) following laws and regulations. Although the opinion of the BUMNs' financial statements and BUMNs' contributions to the State exhibit a positive trend, the opposite trend happens with the ratio of their overall financial performance, particularly the return on assets (ROA) trend of BUMN. This study was analyzed using the Structural Equation Modeling-Partial Least Square (SEM-PLS) approach to test a series of relationships. The analysis results indicate that the auditor must consider risk management in designing the performance audit scope, as the internal auditor's risk assessment and the performance audit scope impact the firm value. Nevertheless, the study's results indicate that the presence of risk management and the need for auditors to consider the internal auditor's risk assessment when determining the performance audit scope have no significant impact on the firm value.

Disclosure of auditor risk assessments in expanded audit reports

PurposeThis rich descriptive study examines auditors' client risk assessment (i.e. “key audit matters”/critical audit matters) disclosures in expanded audit reports of 328 Financial Times Stock Exchange (FTSE) 350 companies. The study compares auditor-identified client risks with corporate risk disclosures identified in audit committee reports, in terms of number and type of risks. The research also compares variation in auditor-identified client risks between individual Big 4 audit firms. In addition, the study examines auditor ranking of their client risks disclosed.Design/methodology/approachThe study manually content analyses disclosures in audit reports and audit committee reports of a sample of 328 FTSE-350 companies with 2015 year-ends.FindingsAudit committees identify more risks than auditors (23% more risks). However, auditor-identified client risks and audit-committee-identified risks are similar (80% similar), as are auditor-identified client risks between the individual Big 4 audit firms. Only ten (3%) audit reports rank the importance of auditor-identified client risks.Research limitations/implicationsSample is restricted to one year, one jurisdiction, large-listed companies and companies audited by Big 4 auditors.Practical implicationsThe study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.Originality/valueThe paper mobilises institutional theory to interpret the findings. The findings suggest that auditor-identified client risks in expanded audit reports may demonstrate mimetic behaviour in terms of similarity with audit-committee-identified risks and similarity between individual Big 4 audit firms. The study provides important insights for regulators, auditors and users of financial statements by identifying influences on disclosure of auditor-identified client risks.

The Audit Risk Assessment of European Small- and Mid-Size Enterprises

To build trust, SMEs must pass on information as clearly as possible, which can be achieved through a transparent financial reporting process. The article aims to study the impact of six accounting quality risk indicators in audit risk assessment from SME audit reports in EU countries, comparing the findings with the analysis of the same indicators at CEECs level. The qualitative research methodology consists of a descriptive study of the risks in the audit reports, emphasizing their types and connection with the company’s characteristics. The study is based on a sample of 443 SMEs listed on the European stock markets and included in the Audit Analytics database, an online platform with information from the company’s financial statements and audit reports. According to the results, the “Audit Fees-Significant Non-Audit Fees” indicator had the highest accounting quality risk impact on SMEs audit reports in the EU. In contrast, for the CEECs companies, the “Audit Fees–Significant Change” index had a more significant impact on the audit reports. The study’s results showed an average trend of 15–16 reported situations per year, with a substantial increase over recent years for CEECs. The main conclusion from the study is that the uncertainties reported by the auditors depend more on the company’s field of activity and how it is managed; therefore, the SME sector should be coordinated according to the accounting regulations regarding the principles and the content of the financial reports. Considering the fast evolution of risks that may affect the audit reports of a small company and the fact that this topic has yet to be thoroughly researched, we find it relevant. The contribution of this article consists of a systematic analysis of the audit risk matrix completing the existing literature, which is why the field can be discussed more widely.

Obavljanje revizije finansijskih izveštaja tokom pandemije COVID-19 na primeru Republike Srbije

During the global pandemic auditors were not able to perform full audit procedures due to social distancing measures. Therefore, mandatory audits were completed by accepting higher audit risk, with the possibility of material misstatements being present within statements to some extent. Uncertainty and risk arising from the current environment have resulted in changes in reporting and audit procedures, although these areas are strictly governed by the legal and regulatory framework. This paper will analyse the existing guidelines on COVID-19 considerations related to financial statements audit, issued by global and national regulators and professional organisations. Namely, all ISA remain in effect and additionally COVID-19 related guidelines should be used as a supplementary material. Furthermore, the paper will present the results of the conducted survey. Mostly external auditors were participants in the survey, with the aim to assess impacts of the pandemic. Results show that most respondents claim that pandemic had an effect on the way audit process is being performed. However, only 7% of them believe that audit quality level is now higher. They named the following audit areas as the ones being affected the most: going-concern principle assessment, audit risk assessment, audit evidence acquisition, and audit documentation and client file preparation.

АСОСИЙ ВОСИТАЛАР АУДИТИНИ ТАКОМИЛЛАШТИРИШ

The article considers the main directions of the co-management of the audit of fixed assets as one of the labor-intensive link of the audit. it is proposed to use a number of working documents of the auditor, provides methodological approaches to the assessment of audit risk, determination of the level of materiality, the formation of an audit sample, which allows a more rational approach to the organization and conduct of the audit of fixed assets

Implementasi Audit Planning Berdasarkan Standar Profesional Akuntan Publik Pada Kantor Akuntan Publik Abdul Ghonie Dan Rekan

Auditing is an examination conducted by an independent party on the financial statements. Prior to the implementation of the audit process, the auditor must prepare an audit plan according to the SPAP audit standard. Audit planning is a stage of the audit process that aims to ensure success in a quality, economical, efficient and effective manner. The purpose of this study was to determine the audit planning applied to KAP Abdul Ghonie and Partners on the audit planning in SPAP. The author's data obtained in the form of Financial Statements used in the Audit Planning at KAP Abdul Ghonie and Partners, such as: Audit risk assessment, understanding of the entity's business and the law, determination of audit scope, preparation of audit plan. After the data was collected, a comparative analysis of the audit planning of Abdul Ghonie and Partners was carried out on SPAP. The results obtained are that KAP Abdul Ghonie and Partners in audit planning are in accordance with SPAP, but KAP Abdul Ghonie and Partners do not comply with international standard audit planning standards that have been approved by IAPI and PP2PK, so it is hoped that KAP Abdul Ghonie and Partners can use the audit application planning in accordance with IAPI to uniform the audit planning model for public accounting firms in Indonesia.

A Risk-Oriented Approach in the System of Internal Auditing of the Subjects of Financial Monitoring

The aim of this research is to generalize the international practice of internal auditing of financial transactions to substantiate alternatives to their rational use by financial monitoring entities in Ukraine. The purpose of the article is to summarize the key changes in international FATF standards and examine the use of a risk-oriented approach by Ukrainian entities in combating AML or CFT. Assessment of audit risk using quantitative characteristics is assumed on the basis of the most commonly used mathematical three-factor multiplicative model. Turning to the EU’s experience is relevant for the global expert and regulators communities given the necessity to consider the best world practices. Summarizing the above provisions of the theory and practice of the risk-oriented approach for Ukrainian SFM allowed for identification of the areas of its practical implementation in the system of internal audit of financial transactions. The presence of an internal audit service will increase the degree of trust that government representatives have in such companies and the likelihood that a mutually beneficial partnership will develop between the parties.

Research on Construction Cost Control Technology of Construction Project Based on Big Data Analysis Theory

The current methods proposed in construction cost control of construction projects have problems such as applicability and low accuracy. Therefore, this paper proposes a method for evaluating engineering cost control based on the big data Analytic Hierarchy Process (AHP) method. Based on the big data technology, the construction cost control index of the construction project is selected, and the construction cost control index model of the construction project is constructed according to the selection results, and the evaluation set is constructed. The corresponding weights of the construction cost control indicators of each construction project are obtained through the analytic hierarchy process, and a weight set is constructed. The membership relationship between the index set and the evaluation set is determined, a fuzzy relationship matrix is constructed, and the construction cost control result of the construction project is obtained according to the calculated weight and the constructed fuzzy relationship matrix. The test results of examples show that the risk assessment accuracy of the proposed method is higher than that of ordinary methods, and the quantitative processing of audit risk assessment is realized.

АУДИТ ЭФФЕКТИВНОСТИ НАЦИОНАЛЬНЫХ ПРОЕКТОВ

The purpose of the study is to improve the methodology for auditing the effectiveness of national projects through the use of standard audit elements. The tasks of developing and supplementing approaches to the standardization of the audit of the effectiveness of national projects were set and solved, in particular, a strategy, program, checklist and risk assessment were proposed as the basis of the audit methodology using the example of the national project “Housing and Urban Environment”. The methodological basis of the research is the system and process approaches to the problem under study. In the course of the research, general scientific methods of logical analysis and synthesis were used, in particular, analogies, typologies, generalizations. Based on the study of extensive empirical material, the results of the implementation of national projects, their financing and the possibility of making changes and adjustments to them are investigated. As a result, it was concluded that the Project Passports included insufficiently justified and resourced values of target indicators, and the values of indicators set by regions were not supported by sufficient organizational measures. In addition, regulatory and methodological documents do not include full-fledged methodological support for their development and implementation, being limited to general approaches and principles. Also, the parameters of the mutual influence of the national project “Housing and urban environment” on other national projects are not specified in the Passport of the national project and in other regulatory and methodological documents, and therefore it is not possible to fully assess the quality of such influence. The practical significance of the article is that the conclusions obtained on the basis of the proposed elements of the methodology for auditing the effectiveness of national projects, in particular, the procedure for drawing up a strategy, audit program, checklist and audit risk assessment, will allow us to develop optimal positions in the regulation and determination of financing of national projects.

Early impact of the PEN HEARTS package to manage noncommunicable diseases in Bhutan: a mixed-methods evaluation

Introduction: Non-communicable diseases (NCDs) pose significant public health challenges in Bhutan. In 2019, Bhutan’s Ministry of Health introduced a set of interventions associated with the World Health Organization’s Package of Essential Noncommunicable Disease Interventions for Primary Health Care in Low-Income Settings called PEN HEARTS. This initiative encompassed six components: healthy lifestyle intervention, evidence-based protocols, access to medicines and technology, risk-based management, team-based care, and systems monitoring. Evaluations of PEN interventions in other countries documented barriers to implementation. The present report provides the result of a 2019–2020 evaluation assessing implementation of PEN HEARTS in Bhutan and initial impacts on provision of care for NCDs and patient outcomes. Methods: A cross-sectional, mixed-methods evaluation was conducted in six districts, two where the interventions were first initiated, two where they were implemented subsequently, and two where no implementation had begun. In each district, data were collected at the district hospital and three basic health units. Quantitative data collection encompassed facility checklists, health worker surveys, and patient record abstraction. For the survey, health workers were selected using random or convenience sampling depending on facility size. For patient record abstraction, enumerators created a sampling frame at each facility to include eligible patients who were then selected randomly for record review. Qualitative data collection included in-depth interviews (IDIs) with health workers, and IDIs with NCD patients. A convenience sample of health worker IDI participants was selected randomly at hospitals; all health workers at BHUs were invited to participate. A convenience sample of NCD patients was recruited from facility waiting rooms on the day(s) of data collection. Lastly, a convenience sample of homebound patients was recruited to participate in IDIs. Quantitative analysis methods included bivariate analysis of categorical and continuous variables, and pairwise comparisons among groups. Qualitative data were analyzed using thematic content analysis with inductive coding. Results: A total of 153 health workers participated in the knowledge survey and 121 patient records were reviewed. IDIs were conducted with 13 health workers, 18 hospital or BHU patients, and four homebound patients. Most elements of the PEN HEARTS program were implemented as planned, including monitoring and supervision. PEN HEARTS had a positive impact on disease control: group A districts had a significantly lower proportion of patients with a treatment gap (p<0.001) and a significantly higher proportion of patients retained in care (p<0.001). Health workers experienced implementation challenges in four main areas: human resources, medicine shortages, equipment failure, and record-keeping. They also described benefits from increased supervision and peer support. Patients described experiencing more patient-centered care and overall positive experiences with the program. Conclusion: The evaluation identified areas of PEN HEARTS implementation that should be strengthened and improved, particularly training, record-keeping, and the use of AUDIT and cardiovascular disease risk assessments. The evaluation also showed evidence of improved disease control across achievement of treatment goals, reduction of treatment gaps, and improved patient retention in care. PEN HEARTS has potential to make a difference for NCD patients, and focusing on improving future implementation may further yield benefits in Bhutan.

TOURISM RISK AUDIT UNDER THE COVID-19 IMPACT

The aim of the article is to investigate main changing trends of tourism industry development in Ukraine under the impact of COVID crisis, to identify risks that tourism business faced during the crisis and proposed the main vectors of such risk management via the audit procedures implementation to minimize the negative impact on tourism business and country economy in general. The article investigates the main trends and performance of tourism industry development in Ukraine under the impact of COVID crisis. There were analyzed risks tourism business faced during the crisis and proposed the main vectors of such risk management via audit procedures implementation to minimize the impact on tourism business. Business strategy development of tourism under crisis impact requires balanced system of measures to overcome the crisis and become more strange by the help of quality business KPIs analysis and performing stable and permanent business goal updating by the help of audit risk management. There were proposed recommendation how to deal with the crisis business risk implementing audit risk assessment approach for domestic Ukrainian tourism business as well as tourism business in general. During the crisis companies should switch focus on domestic tourism, as foreign visitors stay away due to COVID-19; inbound arrivals decline by 44% to 7.5 million in 2020, while outbound departures decline by 48% to 10 million; recovery will be driven by domestic tourism in the shorter term; inbound arrivals to record a 16% volume CAGR over the forecast period, while outbound departures will record a 19% CAGR. To identify and manage crisis business crisis companies should focus on internal audit as instrument to minimization business losses. It should cover issues of identifying such risks, assessment it in order to estimate business result in case in nearest future company will faced crisis and give recommendation and procedures that should be focused on minimization tourism industry losses as a vital segment of country economy.

Research on the Relationship between Audit Risk Assessment and Risk Governance: Evidence from Tunisia

ABSTRACT The study examines the relationship between corporate governance mechanisms and audit risk in firms listed on the Tunisian Stock Exchange (TSE). The study covers the period 2006–2013. Panel regression analysis was used to estimate the relationship between corporate governance variables and audit risk. The results show that board size, board independence and institutional ownership were negatively related to audit risk. It is also discovered that audit risk index level increases as poor corporate governance. These findings may have important implications for analysts, investors, regulators and academics. First, the identifying factors that may influence the audit risk can help guide the reforms to improve the functioning of the financial market. Second, the study provides ample evidence of risk governance problems in the Tunisian market, highlighting the necessity of new corporate governance requirements. This study is unique in providing Tunisian evidence on the effect of corporate governance on audit risk. This paper is also relevant as it develops an index of audit risk and risk corporate governance.

ТЕОРЕТИКО-МЕТОДИЧНІ АСПЕКТИ МІНІМІЗАЦІЇ АУДИТОРСЬКИХ РИЗИКІВ СЛУЖБАМИ ВНУТРІШНЬОГО АУДИТУ

The article presents an overview of approaches to assessing audit risks by internal audit services, and an analysis of ways to minimize them. It was found that the preliminary and final assessments of audit risk in general and its components are significantly differing. Moreover, in an audit by internal audit services, changes in judgment about the amount of individual components of audit risk can change several times during the audit period as additional information becomes available. But taking this into account this moment it will be allow more accurately assess the components of audit risk and develop certain recommendations to minimize it. The author's proved that for internal audit services in developing measures to minimize audit risks, it is first necessary to answer the question of the rationality of risk assessment at the planning stage, if the judgment about it would be changed during the audit. A change in the audit risk assessment necessitates changes in the Audit Plan and Program. Therefore, the authors of the article made a proposal to compile a verification program after testing. For this, testing should be the first step of the audit. In other words, we propose to make changes in the sequence of actions of the auditor during the audit: first assess the risk (this may mean an audit of cash, banking transactions and settlements with accountable persons), and only then draw up an audit program. The author's proposed improvement of the audit risk assessment methodology which will allow compiling an audit program based on real data on the state of the internal control environment, to reduce labour costs when making changes to the audit procedure. These recommendations will improve the quality of the test, because any changes to the program during the test are less reasonable than the program developed on the basis of actually confirmed numerical data and as a whole.

Decision information for auditors to assess litigation risk: Application of machine learning techniques

Fraud cases have become more common in recent years, highlighting the role of auditors’ legal liability. The competent authorities have called for stricter control and disciplinary measures for auditors, increasing auditors’ legal liability and litigation risk. This study used machine learning (ML) techniques to construct a litigation warning model for auditors to assess audit risk when they evaluate whether accept or terminate an engagement, thus improving audit quality and preventing losses due to litigation. Otherwise, a sample matching method comprised of 64 litigated companies and 128 non-litigated companies was used in this study. First, feature selection technology was used to extract six important influencing factors among the many variables affecting auditors’ litigation risk. Then a decision tree was used to establish a litigation warning model and a decision table for auditors’ reference. The results indicated that the eight outcomes provided by the decision table could effectively distinguish the level of a litigation risk with an accuracy rate of 92.708%. These results can provide useful information to aid auditors in assessing engagement decisions.

Confirmation Bias and Auditor Risk Assessments: Archival Evidence

SUMMARY Judgment and decision-making research suggests that auditors' judgments are negatively affected by the use of heuristics. However, there is little research investigating whether such biases survive the quality control processes that regulators and audit firms implement to mitigate them. We investigate this by identifying a setting where one such bias—confirmation bias—is likely to manifest. Consistent with confirmation bias influencing observable audit outcomes, we find that auditors with previous experience auditing a client with a history of low risk followed by an increase in risk do not adequately respond to the higher level of risk. This effect is mitigated when the risk increase is likely large enough to violate auditors' reasonableness constraint and when the client is highly visible or has strong external monitors. Our study complements prior experimental research by providing archival evidence that auditors' use of heuristics has a significant effect on auditor judgments. JEL Classifications: M40; M42.

Constructing the Audit Risk Assessment by the Audit Team Leader When Planning: Using Fuzzy Theory

The aim of this study is to construct the assessment of the expected audit risk by the audit team leader (ATL) during the planification phase of the audit. The ATL plays an important role within the audit, and even more so regarding small and medium-sized (SME) audit firms. The audit risk assessment is critical as relying more (less) on internal controls implemented by the client leads to performing less (more) substantive audit procedures. This is determined by the ATL based on their professional judgement and previous experience. The use of fuzzy theory has powerful potential into the audit arena, as the audit risk assessment (outcome) is critically related to the auditors’ judgement and perception. We argue that ATL characteristics are core conditions in determining the audit risk assessment when planning. Using hand-collected and private data from Spanish SME audit firms, we find that a comprehensive set of conditions must be given for perceived high audit risk. The results indicate that female and inexperienced ATLs planning the audit of indebted firms with high proportions of capital assets, less profitability, and with a larger board sizes, as they are expected to have bad internal control. The same conditions are met when expecting errors, as well as shorter audit tenures. Finally, conditions such as the ATL’s experience gains importance in expecting irregularities. This paper extends our understanding of the role of ATL characteristics on the audit risk assessment when planning and raising awareness on studying SME audit firm behavior.