Audit Procedures Research Articles

THE AUDIT PROCESS OF THE IT SYSTEMS OF A COMPANY THAT PROVIDES ACCOUNTING SERVICES

Over the time, IT systems have constantly evolved and for this reason IT systems must undergo periodic audit procedures to see if they enable the achievement of a company's strategic objectives and the efficient use of IT resources. The main purpose of the paper is to investigate how the audit mission is carried out on IT systems (ERP systems) within a company that provides accounting, consulting, payroll and audit services. The role of these IT systems (ERP systems) is to ensure the correct and complete integration of information within a company. ERP systems provide the perfect maintenance of the internal control system, but also the ability of managers to analyse the information provided by these IT systems as correctly as possible. In this article, the author made a case study, analysing the risks of an IT system of a company that offers accounting services using the MEHARI technique. The results obtained showed that the systems are effective and would withstand cyber-attacks, but could be less resistant in terms of specialized attacks (well-equipped hackers, professional spies).

The Double Materiality Audit: Attestation of ESG Disclosures in Financial Statements

SYNOPSIS Auditors are required to evaluate the reliability of financial numbers and potentially provide attestation of environmental, social, and governance (ESG) claims disclosed in financial statements. Double-materiality refers to assessing materiality from two aspects: first, the extent necessary for an understanding of the company’s financial position, and second, the ESG impact of the company’s activities on a broad range of stakeholders. For an audit, these are interconnected, meaning that despite their inherently nonfinancial nature, ESG factors are closely associated with financial outcomes and potential business risks. This research provides an understanding of such a double materiality audit by recognizing the role of external auditors regarding the interaction between a financial audit and ESG attestation and suggests an audit analysis roadmap that incorporates both quantitative and big ESG data. Specifically, it proposes extended audit procedures for data collection, verification, and analysis and highlights the ongoing challenges and opportunities. JEL Classifications: G18; G30; G32; G38; M14; M41; M42; M48.

Investigating the Structural Model of Whistle Blowing System on Government Procurement Fraud: Examining Mediating Effect of Investigative Audit

This study aims to develop a fraud disclosure model in government procurement in Indonesia through a whistle blowing system with an investigative audit as a mediator. Disclosure of fraud is the result of an investigative audit. The effectiveness of the implementation of investigative audit procedures will be achieved if the auditor has the ability to carry out each stage in the audit standard. To maximize the performance of investigative audits, a system is needed to uncover fraud. The whistleblowing system is expected to be an effective tool to reveal fraud in government procurement. The research was conducted by distributing questionnaires to respondents electronically by sending a google form link containing a list of questions to auditors at the Supreme Audit Agency (BPK) and internal auditors at the Financial and Development Supervisory Agency (BPKP) throughout Indonesia. The results of the study found that the use of a whistle blowing system could increase the effectiveness of investigative audits on government procurement. Another finding is that investigative audits can reduce the disclosure of government procurement fraud. The effectiveness of the whistle blowing system in reducing the level of disclosure of government procurement fraud does not occur directly, but must be mediated by a good investigative audit. The results of this study indicate that the reporting of government procurement fraud cases on the whistle blowing system must be followed up with a thorough investigative audit so that disclosures of government procurement fraud cases can be traced better. Additional analysis in this study shows that although the functions of external auditors and internal auditors are different, the level and type of disclosure of government procurement fraud do not differ.

Transfer Pricing End-of-Year Adjustments in the United States

This article highlights the rules and practices in the United States concerning transfer pricing year-end adjustments including appropriate collateral adjustments such as correlative allocations, conforming adjustments and setoffs. In addition, this article discusses relevant audit procedures related to year-end adjustments in the United States and provides best practices for taxpayers to prevent potential disputes.

An Analysis Examining the Way Supply Chain Management-Focused Third-Party Environmental Audits Contributed to Business Sustainability Efforts

A crucial instrument for improving openness and responsibility, third-party environmental audits have become more popular as the focus on corporate sustainability has grown. The role of these audits in propelling sustainability efforts within corporations is the subject of this study. To make sure a business is in line with regulations and finds ways to improve, it can get an impartial opinion by having a third party conduct an environmental audit. The impact of these audits on business practices and sustainability is investigated in this paper through an analysis of case studies and empirical data. Based on the results, it seems that third-party audits help improve environmental performance by encouraging responsibility and constant development. Better resource efficiency, less waste, and reduced emissions are common outcomes of audited companies' adoption of more stringent environmental management systems. In addition, third-party audits boost stakeholder trust—an essential quality for a company's public image and the faith of its investors—due to the audits' impartiality and reliability. The thoroughness of the audit, the auditors' knowledge and experience, and the firm's resolve to follow audit recommendations are the three most important variables that determine how useful these audits will be. Concerns raised by the research include the possibility of superficial compliance and the necessity for uniform audit frameworks to permit comparison and uniformity throughout businesses. Because they offer an impartial assessment of environmental performance and advocate for best practices, third-party environmental audits are crucial in propelling corporate sustainability efforts. It is critical to resolve the highlighted issues and continually improve audit procedures to enhance their efficacy. Policymakers, corporations, and stakeholders can use this research to better understand the value of third-party audits in reaching sustainable development goals and how to improve corporate sustainability initiatives.

Intelligent manufacturing, auditor selection and audit quality

PurposeThe purpose of this paper is to examine the influence of intelligent manufacturing on audit quality and its underlying mechanism as well as the variation in this influence across different types of organizations.Design/methodology/approachThis research utilizes a difference-in-differences (DID) method to examine how enterprises that apply intelligent manufacturing choose auditors and impact their audit work. The study is based on 15,228 observations of Chinese-listed A-shares from 2011 to 2020.Findings(1) There is a strong correlation between intelligent manufacturing and audit quality. (2) This positive correlation is statistically significant only in state-owned enterprises (SOEs), those that have steady institutional investors and where the roles of the CEO and chairman are distinct. (3) Enterprises that have implemented intelligent manufacturing are more inclined to employ auditors who possess extensive industry expertise. The auditor's industry expertise plays a crucial role in ensuring audit quality. (4) The adoption of intelligent manufacturing also leads to higher audit fees and longer audit delay periods.Practical implicationsThis paper validates the beneficial impact of intelligent manufacturing on improving corporate governance. In addition, it is recommended that managers prioritize the involvement of skilled auditors with specialized knowledge in the industry to ensure the high audit quality and the transparency of information in intelligent manufacturing enterprises.Originality/valueThis study builds upon previous research that has shown the importance of artificial intelligence in enhancing audit procedures. It contributes to the existing body of knowledge by examining how enterprise intelligent manufacturing systems (IMS) enhance audit quality. Additionally, this study provides valuable information on how to improve audit quality in the field of intelligent manufacturing by strategically selecting auditors based on resource dependency theory.

What Lies Beneath: A Development-Oriented Auditing Approach to Understand Organizations Beyond the Surface of Hard-Control.

Auditing procedures aim to improve educational quality in vocational education and training. Auditing approaches often focus on checking for compliance to rules and standards. Through dialogue, development-oriented audits are thought to inspire soft-control, a form of control that aims to address what is beneath the surface of mere compliance. These kinds of audits offer opportunities to demonstrate ethical leadership as part of an ethical culture. It is expected that an ethical culture variables positively influence working climate variables and ultimately intrinsic motivation. In this study, conducted as part of the (Hermanussen et al., 2022) study, we employed structural equation modeling to test if model behavior and sanctionability positively influenced perceived autonomy, perceived relatedness, trust, and self-efficacy, and ultimately intrinsic motivation. The study was conducted at eight different Dutch secondary vocational education and training organizations including 1223 participants. Results demonstrate a good model fit, χ2 = .12, df = 3, p = .989, GFI = 1.00, AFGI = 1.00, and RMSEA <.001. All presumed effects were significant. The strongest effects include model behavior on autonomy (.49) and autonomy on intrinsic motivation (.45). Future research should employ designs and analyses that are able to account for a multilevel structure in educational organizations.

Investigation of the Current Internal Audit Processes and Procedures within Morogoro Municipal Council

This study focused on investigating the current internal audit processes and procedures within Morogoro Municipal Council. A descriptive research design and quantitative approach were utilized, targeting Morogoro Municipal Council staff and internal auditors with a sample size of 74 respondents selected via simple random and purposive sampling methods, respectively. Data was gathered through questionnaires for staff and interviews for auditors, supplemented by secondary data from relevant documents. While most respondents agree that the internal audit processes are well-documented, effectively communicated, and robust enough to address risks, there are concerns about adherence, resource adequacy, and the independence of the audit function. To improve effectiveness, it is recommended that the Council enhance adherence to procedures, allocate adequate resources, strengthen the independence of the audit function, and ensure regular updates to audit procedures. These steps will better support governance, accountability, and overall organizational efficiency.

ОСОБЛИВОСТІ АУДИТУ ДОХОДІВ, ВИТРАТ І ФІНАНСОВИХ РЕЗУЛЬТАТІВ ВІТЧИЗНЯНОГО СІЛЬСЬКОГОСПОДАРСЬКОГО ПІДПРИЄМСТВА В УМОВАХ ВОЄННОГО СТАНУ

The article is devoted to the study of the audit of income, expenses, and financial results of agricultural enterprises in Ukraine during the martial law. The main problems of the domestic agricultural industry, caused by the specifics of the industry, are identified: deterioration of economic conditions, economic difficulties, competition problems, infrastructural limitations, personnel problems, difficulty in obtaining permits and certification, limited access to modern technologies. It is substantiated that the problems of the organization of accounting and management of agricultural enterprises are represented by insufficient automation of accounting and control processes, insufficient investment attractiveness of these enterprises in reporting, the complexity of accounting for supply processes, production and formation of costs, the complexity of obtaining loans, the complexity of tax accounting. The identified problems of the functioning of domestic enterprises in the conditions of martial law: the threat of security for workers and resources, the complication and increase in the price of the supply and implementation process, the loss of qualified labor, economic difficulties, the instability of legislation, the cancellation of benefits. It was established that the state of war in Ukraine causes additional problems for auditing: changes in the conditions of audit activity and audit risks, the complication of forecasting and assessment of financial results, the need to assess the impact on financial reporting of changes in accounting policies and management strategies, the need for additional audit procedures to determine and settlement of new risks. The work analyzes the peculiarities of the audit process of financial reporting of an agricultural enterprise, its income, expenses, and results of activity. The study showed that the main factor influencing the quality of the audit is the use of effective audit procedures. The work presents directions for optimizing the audit due to its digitalization, identifies problems that may arise, and suggests ways to solve them.

Анализ влияния нарушений требований безопасности на возникновение происшествий на предприятиях магистрального транспорта газа

The procedure of behavioral safety audit has successfully established itself in the practices of Russian and international companies in various industrial sectors. When conducting a behavioral safety audit, an auditor compares the observed conditions and employee’s actions with the established classifier based on the behavioral safety audit results report. In order to determine the relationship between hazardous actions of employees and dangerous conditions at their workplaces with the potential severity of accident consequences, a retrospective analysis has been conducted for the study, where the root causes of 411 accidents that occurred at main gas transportation enterprises have been compared with violations of safety requirements using 33 criteria of the behavioral safety audit. During the discriminant analysis, canonical discriminant functions and centroids have been determined, the coefficient of canonical correlation and the values of Wilks' lambda criterion and F-criterion have been calculated, and standardized and structural coefficients have been identified. As a result of the study, 10 criteria of the classifier of the behavioral safety audit have been detected, whose violation significantly affects the determination of the potential severity of accidents; the degree and conditions of such impact within the context of the examined selection have been established and substantiated.

The Effect of Nature of Critical Audit Matters and Outcome Indication on Investors’ Decisions

ABSTRACT Two aspects of critical audit matter (CAM) disclosure are (1) whether it relates to complexity in audit judgments (complex CAM) or uncertainty in underlying management estimates (uncertain CAM) and (2) whether an indication of the outcome of audit procedures performed to address the CAM is included in the disclosure. We use two controlled experiments to examine the joint effects of CAM nature and the presence of a CAM outcome indication on investors’ judgments of investment attractiveness. In the first (second) experiment, we used a stronger (weaker) outcome indication, which provides stronger (weaker) conclusions about the audit procedures performed to address the CAM. We find that the provision of a stronger (weaker) outcome indication increases investment attractiveness judgments to a greater (an equal) extent for an uncertain CAM than for a complex CAM. Data Availability: Please contact the authors.

A compliance and audit model for tackling tax evasion in Nigeria

Tax evasion remains a significant challenge for Nigeria, undermining economic stability and reducing public revenue. This paper proposes a comprehensive compliance and audit model designed to address tax evasion in Nigeria. The model integrates enhanced compliance strategies, advanced audit procedures, and the strategic use of technology to create a robust framework for tackling tax evasion. The proposed model emphasizes proactive measures to improve taxpayer compliance through targeted education and outreach programs, streamlined reporting processes, and incentivization. On the audit front, it advocates for the adoption of sophisticated audit techniques and technologies, including data analytics and automated systems, to detect and address evasion more effectively. The implementation framework outlines a phased approach involving key stakeholders such as the Federal Inland Revenue Service (FIRS), local tax authorities, and the private sector. By examining domestic and international case studies, the paper highlights successful practices and potential challenges, providing actionable insights for adapting these strategies to the Nigerian context. Evaluation metrics are proposed to assess the model’s effectiveness, with expected outcomes including improved tax revenue, enhanced compliance rates, and strengthened public trust in the tax system. The study concludes with recommendations for further research and policy adjustments to refine and expand the model's application. This approach aims to not only mitigate tax evasion but also contribute to a more transparent and equitable tax system in Nigeria.

Маркетинговый аудит в управлении инновационной деятельностью компании: методология и метрики

In today's complex digital business world, almost every company understands the importance of introducing innovations in the process of operation. At the same time, the issues of diagnosing and assessing the results of the chosen innovative path using a marketing audit remain relevant for the reason that there is simply no ready-made template or algorithm for conducting a marketing audit of a company. The problem is the ambiguous definition of a set of indicators for the marketing audit procedure. The purpose of the work was to determine the importance of conducting a marketing audit in the process of managing an innovative company using the algorithm and metrics of a marketing audit. The methodological basis of the study was a review of scientific works of Russian and foreign authors on the issues of conducting marketing audits and an analysis of the operating features of companies involved in the development and implementation of innovations. The specific features of managing an innovative company were identified, and the methodological and methodological problems of conducting a marketing audit of an innovative company were identified. The results of the study showed that the approaches existing in foreign and domestic literature that describe the process and mechanics of conducting a marketing audit are fragmentary. The work proposed its own algorithm for conducting a marketing audit, and identified a set of additional quantitative indicators (metrics) for a more complete and comprehensive procedure for conducting a marketing audit for managing the innovative activities of a company operating in conditions of uncertainty, risks and competition. The article substantiated the importance and relevance of introducing a marketing audit algorithm. The results of the study can be used by innovative companies when conducting a marketing audit procedure.

METHODOLOGICAL APPROACHES TO TAX AUDIT: THE IMPERATIVE OF ANALYSIS UNDER THE CONDITION OF UNCERTAINTY OF THE TERM

Introduction. A tax audit is a comprehensive examination of the financial activities of business entities with the aim of assessing compliance with tax legislation and identifying possible violations. In modern conditions, when economic instability and constant changes in tax legislation are becoming the norm, ensuring the effectiveness and accuracy of tax audits requires the use of complex methodological approaches. One of the key problems of the tax audit is the uncertainty of terms, which makes it difficult to plan and conduct audit procedures. Uncertainty can be caused by various factors, including changes in legislation, economic crises, force majeure and other unforeseen events. This uncertainty creates additional challenges for auditors who must adapt their methodological approaches to new conditions. The purpose of the article is considering methodological approaches to the interpretation of tax audits, identify their advantages and disadvantages. To justify the analysis as an imperative element of the tax audit method in the system of control over compliance with tax legislation. Methods. The following methods were used in the study of methodological approaches to tax audits in conditions of uncertainty of terms: analysis of literary sources. A systematic review of scientific publications, articles, monographs and legal acts related to tax audit was conducted. This made it possible to identify existing approaches and theoretical foundations; Comparative analysis: a comparison of different methodological approaches used in tax audits in different countries and conditions was made. This helped identify the most effective practices and adapt them to conditions of uncertainty. Results. A detailed substantiation of methodological approaches to the interpretation of tax audit from the standpoint of linguistic semantics strengthens the opinions of those scientists and practitioners who believe that in parallel with independent audit and audit services in the field of taxation, the concept of tax audit can be used for inspections carried out by tax authorities. In this case, both tax authorities and independent auditors have the right to use the concept of tax audit and have the right to conduct it. However, in our opinion, it is more appropriate to use two separate terms, in particular, such as "state tax audit" and "independent tax audit".

Corporate environmental, social, and governance information disclosure and audit governance in the context of green development

The purpose of this paper is to investigate the relationship between Environmental, Social, and Governance (ESG) disclosure and audit governance. The objective is to assess the impact of auditor team independence, auditor professional quality, and transparency of audit procedures on the quality of information disclosure, and to elucidate the role of these factors in advancing sustainable development. Research methodologies include the optimization of information disclosure text analysis using natural language processing (NLP) and text generation techniques, complemented by empirical analysis. Key findings indicate that the maximum error between NLP and manual annotation in the proportion of positive emotions in information disclosure is 0.03, and 0.06 in audit governance. The Rouge index score surpasses the 0.5 threshold, while the Perplexity value varies across three experiments, though remaining generally low. Deep learning model results reveal that auditor team independence, professional quality, and procedural transparency significantly enhance the quality of information disclosure. These findings offer crucial insights for enterprises, regulators, and investors, affirming the rationality and stability of the model, and providing valuable input for future green development strategies and decision-making processes.

Assessing the solvency of virtual asset service providers: are current standards sufficient?

ABSTRACT Centralized cryptocurrency exchanges, which manage annual trading volumes on the scale of trillions of US dollars worldwide, are classified as virtual asset service providers (VASPs). They facilitate the exchange, custody, and transfer of cryptoassets organized in wallets across distributed ledger technologies (DLTs). As any corporation, VASPs can become insolvent. Despite the public availability of DLT transactions, their cryptoasset holdings are not yet subject to systematic auditing procedures. In this paper, we propose an approach to assess the solvency of a VASP by cross-referencing data from three distinct sources: cryptoasset wallets, balance sheets, and supervisory entity data. We investigate 24 VASPs registered with the Financial Market Authority in Austria. Regulatory data insights show that their yearly incoming and outgoing transaction volume amounts to 2 billion EUR for 1.8 million customers; the financial services they provide position them closer to brokers, money exchanges, and funds, rather than banks. Next, we empirically measure DLT transaction flows of four VASPs and compare their cryptoasset holdings to balance sheet entries. Data are only partially consistent; this enables us to identify gaps in the data collection and propose strategies to address them, towards achieving a more systematic, reliable, and automated assessment of VASPs solvency.

Evaluasi Prosedur Audit atas Persediaan Obat-Obatan pada Rumah Sakit X Oleh Kantor Akuntan Publik ZYX

Inventory of medicines in hospitals is an important and significant asset. The inventory of medicines must be adjusted to meet the substantial treatment needs of the hospital, as inadequate pharmacy efficiency can prevent healthcare services in the hospital. The inventory of medicines in hospitals hold significant importance as it impacts the quality of service delivery. Therefore, auditors perform inventory audit procedures to verify that the inventory reported in the financial statements is consistent and accurate with the actual conditions in the field. The purpose of this research is to evaluate the performance of auditors in auditing financial statements, especially focusing on inventory accounts. The method used is a qualitative descriptive method with primary data sources from interviews with auditors at the Public Accounting Firm (KAP). Advices for auditors at KAP ZYX are improving their skills and knowledge regarding the audit process or the latest regulations through training and experience that can increase their insight.

Applying The Six Sigma Methodology To Enhance Accounting Information Quality And Boost Tax Revenue- An Applied Study

The purpose of the research was to boost tax revenues and enhance the accuracy of accounting information by implementing the SIX SIGMA technique. In order to gather primary data from the study sample, which consisted of (148) personnel in the quality and internal audit departments or the representatives of them in the Iraqi General Tax Authority, a questionnaire with (148) items was created. The study came to several conclusions, chief among them being that Six Sigma standards—which include senior leadership commitment and support, feedback and measurement, continuous improvement, processes and systems, and human resources—have a major influence on enhancing the degree of accounting information quality and collecting tax revenue (internal audit activities management, risk management evaluation, planning and carrying out the audit procedure, and sharing the findings) at a significant level (0.05). The report advised focusing on the Six Sigma idea and showcasing its potential for reducing mistakes, enhancing the caliber of accounting data, and boosting tax revenues.

Determining the materiality for auditing procedures in relation to integrated reporting

Subject. This article examines the problem of fragmentation of the methodology for auditing (certifying) non-financial reporting, namely, determining the materiality for auditing procedures in relation to integrated reporting. Objectives. The article aims to analyze and work out the existing methodological approach to determining materiality for auditing procedures in relation to integrated reporting, taking into account the features of modern corporate reporting and the requirements of international standards. Methods. For the study, I used logical analysis and synthesis. Results. The article proposes a systems approach to the implementation of audit procedures in terms of unifying the process of determining materiality in the context of the changing paradigm of corporate reporting. Conclusions. When determining materiality as part of audit procedures in relation to integrated reporting, the article recommends adhering to the principle of quantification of double materiality in relation to the financial materiality of the business process decomposed by the cost item.

How hours allocated to year-round auditing procedures affect audit quality

PurposeThis paper aims to examine how the allocation of audit hours to the year-round procedures, based on the risk of material misstatements in financial statements, impacts audit quality.Design/methodology/approachUsing a data set on audit hours spent on year-round and year-end procedures, the authors build an empirical model for testing the effectiveness of year-round auditing of Korean public firms during the period of 2014–2018.FindingsThe initial tests do not show that proportionate increases in year-round procedures increase audit quality. However, after the authors control for the risk of material misstatements, the authors find that proportionate increases in year-round audit hours generally increase audit quality, except for high-risk firms where audit quality increases only as year-end hours proportionately increase. For high-risk firms, the results suggest that increases in year-round audit procedures occur at the cost of the essential year-end work. Similarly, except for high-risk firms, the authors find that the allocation of more audit effort to year-round procedures improves audit efficiency.Originality/valueTo the best of the authors’ knowledge, this study provides some of the first empirical evidence showing how a risk-based approach to allocating audit effort over the duration of an audit can impact audit quality and efficiency. Regulatory bodies, such as the International Auditing and Assurance Standards Board and Public Company Accounting Oversight Board, which consider the proper allocation of audit hours as a key audit quality indicator, should find the results useful.