Audit Risk Research Articles

The Role of Atlas Application in Moderating the Influence of Due Professional Care and Accountability on Audit Risk Assessment

This study examines the role of the ATLAS application in moderating the influence of due professional care and accountability on audit risk assessment in public accounting firms (KAP) in Bali Province. This study uses a quantitative approach with the purposive sampling method to determine respondents, and data analysis is carried out using Moderated Regression Analysis (MRA). This study uses the COSO ERM theory to help understand and explain the research results related to risk management in the audit process. The study results show that due professional care has a positive and significant effect on audit risk assessment in Bali Province, which indicates that auditors who perform their duties with professional prudence tend to produce more accurate risk assessments. On the other hand, accountability had a positive but insignificant effect on audit risk assessment, suggesting that although there is a positive relationship, the influence is not strong enough to be considered statistically significant. The role of ATLAS cannot moderate the influence of due professional care or accountability on audit risk assessment, which indicates that ATLAS, although designed to support the audit process, has not been effective in strengthening the relationship. This study provides insights into the importance of due professional care in audit risk assessment and optimising the use of ATLAS in implementing audits.

CEO–CFO Compatibility and Audit Risk

AbstractThis study examines the influence of CEO–CFO compatibility (proxied by the similarity of their personalities) on audit risk (proxied by audit fees). Relying on similarity‐attraction theory, we posit that alignment between the CEO's and CFO's personalities − specifically their ‘Big Five’ traits − enhances internal communication, information sharing and decision‐making processes within the organization. This alignment, in turn, reduces audit risk associated with the firm's financial reporting. We test our theory using firm fixed effects and find that greater CEO–CFO personality similarity is associated with reduced audit fees. Further, we find that the tenure of the CEO–CFO relationship partially explains the relation between their personality similarity and audit fees. Finally, we find that the effect of CEO–CFO personality similarity on audit fees is stronger when corporate governance allows greater managerial autonomy, that is, CEO–CFO compatibility is more important for reducing audit risk when corporate governance is weak. Our results are robust after controlling for many other characteristics of the CEO and CFO and potential endogeneity related to CEO turnover.

Audit Risks and Countermeasures of Fresh Food E-commerce under the New Retail Model

Driven by the new retail model, the fresh food e-commerce field has witnessed rapid development, attracting numerous enterprises to rush in. However, as the market is gradually becoming saturated and the growth rate is slowing down, the competition among enterprises has become increasingly fierce, and the operating pressure has accordingly increased, which has, to some extent, raised the risk of fraud among fresh food e-commerce enterprises. Under the new retail model, certain changes have taken place in aspects such as the operating environment, business activities, and internal control of fresh food e-commerce, presenting characteristics like multi-channel sales and a large amount of structured and unstructured data. All of these pose certain challenges for auditing. This article analyzes the auditing risks that fresh food-e-commerce has under the new retail model and also discusses the corresponding auditing countermeasures. Because only when auditors have a clear understanding of these risks can they formulate appropriate strategies to deal with them. For example, in the face of complex business models and massive data, auditors need to master advanced auditing techniques and data analysis methods to identify potential risks accurately. Moreover, understanding the internal control changes in fresh food e-commerce enterprises is crucial for auditors to assess whether the existing control systems can effectively prevent and detect possible fraud behaviors, so as to ensure the authenticity and reliability of financial information and safeguard the legitimate rights and interests of stakeholders.

Utilizing Robotic Process Automation and Artificial Intelligence in Auditing to Mitigate Audit Risks

Automating repetitive tasks significantly increases the efficiency of operations by identifying repetitive tasks, then choosing the appropriate tools for automation, designing successful workflows, testing, iteration, monitoring the performance of operations continuously, and making the necessary adjustments, which helps auditors accomplish their mission. This research aims to highlight the urgent need to develop the skills of accountants and auditors to maintain alignment with the swift advancements in digital technology in the accounting field to reduce fraud risks and protect stakeholders. The study relied on the applied aspect of 157 questionnaires distributed to a sample of auditors working in auditing firms and Federal Financial Supervision Bureau auditors. We used a five-point Likert scale to answer the questions on the questionnaire and the SPSS V.25 statistical package to look at the data and test our research hypotheses. We used Pearson correlation, simple regression, the coefficient of determination and interpretation R2, and the standard coefficient of regression B. Our research showed that using robotic process automation and artificial intelligence in auditing would make audited financial statements more reliable. Adding auditors' skills, artificial intelligence, and process automation will also significantly mitigate inherent control and detection risks. Furthermore, enhancing the quality of auditing

امكانية تحسين فعالية الرقابة الداخلية باستخدام اشارات خطر التدقيق للحد من حالات الغش والاحتيال: دراسة نظرية

Abstract The contemporary business environment is always fraught with risks, uncertainties and uncertainties, including errors and fraud, which can have serious financial consequences for an organization's reputation. Despite the implementation of internal control systems in these institutions, these risks still exist and recur as the business and operations are completed. This is where the research problem of ineffectiveness arisesInternal controls in mitigating the occurrence of errors and cases of fraud within institutions. This motivates auditors to take a proactive approach to identifying and addressing weaknesses. This approach is to use the potential of audit risk signals as a means of enhancing the effectiveness of internal control measures. This study aimed to increase the auditor's efficiency in detecting financial fraud by studying and analyzing the impact of using audit risk signals in improving the effectiveness of internal control, and evaluating internal control systems and the extent of reliance on it. The study relied on the descriptive approach through the use of theses, letters, periodicals, books and websites that dealt with the subject of the study, especially those related to the topics of audit risk signals and internal control. The study concluded several conclusions, the most important of which are: that the availability and use of audit risk signals by the auditor helps to achieve savings in the time and cost allocated to the audit process, and to direct attention to citizens who have the possibility of fraud, which achieves the effectiveness of the audit process in general, and the high efficiency of the audit in particular, there is a lack of access to sufficient and reliable information before starting the audit, and this indicates that there are obstacles that limit the importance of good communication with employees and the collection of information necessary to understand the situation accurately. The study also included several recommendations, the most important of which are: the need for auditors to be distinguished by the ability to analyze the causes and search for the real roots of the problem instead of relying only on apparent signals. Auditors should adhere to strong and transparent audit practices such as audit risk signals to ensure the correctness and reliability of employees' transactions, management, assets and financial reports in order to improve the effectiveness of internal control.

The unintended consequences of targeted poverty alleviation: Evidence from China

This study examines the effect of corporate targeted poverty alleviation (TPA) activities endorsed by Chinese governments on audit outcomes. We find that firms engaging in TPA activities are less likely to receive modified audit opinions (MAOs) relative to those without TPA activities and more TPA investments induce less MAO issuance, documenting an unintentional beneficial consequence of TPA. These findings are robust to a battery of sensitivity tests, including addressing endogeneity issues and ruling out the alternative explanation. Our cross-sectional results show that the negative relation between TPA and MAOs is more significant for firms audited by non-industry specialists and short-tenure auditors, non-state-owned enterprises (non-SOEs), and labor-intensive firms. We perform the mediation analyses and identify three potential channels- improved operating performance, enhanced information disclosure quality, and elevated reputation- through which TPA engagements influence the likelihood of receiving MAOs. Moreover, we find industrial development TPA has a more pronounced effect on audit outcomes due to its positive impact on firms’ business operations. Overall, our research documents an unintended consequence of firms’ TPA initiatives in mitigating audit risk. As a vital facet of policy-oriented CSR, TPA engagements exhibit unique characteristics compared to other CSR perspectives. Given its economic relevance and political features, our study contributes to this stream of research and offers implications for TPA initiatives.

Research and Optimization of Audit Risk Assessment Model Based on Regression Algorithm

Recently, auditors have used audit risk models’ conceptual tools to assess and control the many risks that could occur during an audit. The tool guides the auditor in determining the necessary evidence for each relevant allegation and the required categories of evidence. The importance of refining audit risk assessment models depends on the crucial role that these models perform in allocating resources and reducing financial disparities. The challenging characteristic of such an audit risk assessment model is that inaccurate information can lead to incorrect risk assessments, legal frameworks and failure to detect material misstatements in financial statements. Hence, in this research, BP neural network-enabled machine learning (BPNN-ML) technologies have been improved for the audit risk assessment model. In that financial disparity, the regression algorithm was used to establish the audit risk assessment for data processing and entirely monitor it. The suggested method provides a flexible framework that may be utilized by a wide range of organizations, including global enterprises and financial institutions, to optimize audit processes and ensure regulatory compliance. This research adds to advancing auditing procedures and regulatory compliance efforts in contemporary company contexts by addressing the issues inherent in traditional methods and proposing a practical approach to these concerns. The experimental analysis of BPNN-ML outperforms physical monitoring in terms of feature importance ranking analysis, contextual adaptability analysis, sensitivity analysis, performance analysis and optimized risk assessment analysis.

Politically connected audit committee and audit risk: Evidence from a quasi‐experiment

Politically connected audit committee and audit risk: Evidence from a quasi‐experiment

Long-term accuracy of the National Emergency Laparotomy Audit risk score: Analysis of the impact of comorbidities on mortality 5 years after emergency laparotomy.

The National Emergency Laparotomy Audit (NELA) risk prediction tool has demonstrated superiority in predicting 30-day mortality after emergency laparotomy (EL). The aim of our study was to evaluate the accuracy of NELA in calculating long-term (5 year) mortality and determine factors predicting long-term risk of death after EL. This retrospective cohort study included consecutive patients who underwent EL for any indication other than trauma between May 2012 and June 2017 at a large tertiary and academic teaching center. The primary outcome was all-cause postoperative mortality at 1 and 5 years. The c statistic (<1.0, excellent; <0.90, good; 0.80, fair; 0.70, poor) was used to assess accuracy of the NELA. Multivariable regression was used to identify independent risk factors for 5-year mortality after EL. From a total of 758 patients, observed mortality continued to increase from 15.4% at 1 year up to 31.4% at 5 years. The NELA risk score accurately classified deceased patients at both 1 year (c = 0.82; 95% confidence interval [CI], 0.78-0.85) and 5 years (c = 0.82, 0.79-0.85) after EL. History of ascites (adjusted odds ratio [aOR], 3.3; 1.0-11.3; p = 0.048), chronic obstructive pulmonary disease (aOR, 1.9; 1.1-3.4; p = 0.030), congestive heart failure (aOR, 3.6; 1.2-11.5; p = 0.025), myocardial infarction (aOR, 2.6; 1.5-4.6; p = 0.001), and a new cancer diagnosis (aOR, 2.8; 1.7-4.8; p < 0.0001) were independent prognostic factors for death 5 years after EL. Long-term prognosis after EL remains poor for at least 5 years postoperatively. The NELA score is accurately able to predict risk of death up to 5 years after EL. History of ascites, chronic obstructive pulmonary disease, congestive heart failure, myocardial infarction, and a new diagnosis of cancer were independent prognostic factors for long-term mortality after EL. Prognostic and Epidemiological; Level IV.

Research on Audit Risks in the Recognition of Data Assets on Financial Statements

This paper explores the audit risks associated with the recognition of data assets on financial statements, focusing on the complexities arising from their replicability, unique valuation patterns, and contextual dependencies. It identifies major misstatement risks at both the financial statement and assertion levels, including the potential for management to exaggerate data asset values, uncertainties in valuation methods, and deficiencies in data governance and internal controls. Additionally, auditors’ lack of professional knowledge and inappropriate audit methods can lead to inspection risks. The paper emphasizes the urgent need for enhanced accounting standards for data assets, effective guidelines for their recognition and measurement, and robust internal controls. Furthermore, it advocates for the exploration of effective valuation methods and the incorporation of advanced technologies, such as big data and AI, into auditing practices. By improving auditor training and methodologies, organizations can better manage the inherent risks associated with data asset auditing.

CFO Compensation and Audit Fees

Executive compensation contracts may influence financial reporting quality, and the CFO plays a key role in preparing the financial statements. This study examines whether the structure and components of CFO compensation are associated with audit risk as measured by audit fees for a sample of S&amp;P 1500 companies during the period 2012–2022. We find that the percentage of total compensation composed of either stock or options is significant and positively related to audit fees, while non-equity incentive plan compensation is significant and negatively related to audit fees. We also find that the dollar amount of equity compensation is significant and positively related to audit fees, while the dollar amount of non-equity compensation is not related to audit fees. These results suggest that CFO compensation structure is an important factor in the assessment of audit risk, which is important for compensation committees as well as regulators. This is the first study, to our knowledge, that examines the relationship between the dollar amount and composition of CFO compensation and audit fees.

Study on Audit Risk Model Based on Data Mining Algorithm

With the widespread application of modern information technologies such as big data, enterprises have generated a large amount of data in their daily operations. The traditional audit methods have drawbacks such as high cost and high consumption, and can no longer meet the needs of audit work in the digital era. Therefore, it is urgent to adopt audit methods suitable for the digital era to improve audit quality and reduce enterprise Audit risk. For professional auditors in enterprises, it is very important to utilize emerging technologies such as data mining algorithms. The audited enterprise may tamper with its financial statements, and identifying high-quality audit data from massive amounts of data is a huge challenge. Compared to traditional audit methods, data mining algorithms can significantly improve the efficiency and accuracy of audit work. For example, the BP neural network, with its powerful nonlinear mapping ability, can capture complex relationships in data; Support vector machines classify data by finding the optimal hyperplane in high-dimensional space and have good generalization ability; random forest reduces overfitting and improves prediction accuracy by integrating multiple decision trees; Association rule algorithms can discover interesting relationships between data items, helping auditors identify potential fraudulent behavior or abnormal transactions. Therefore, the purpose of this study is to accurately evaluate and reduce the audit risk of enterprises, and to build an audit risk model using computer data mining algorithms. This provides necessary reference and guidance for auditors to conduct data analysis and mine valuable data during the audit process of enterprises, thereby improving audit efficiency.

Common Institutional Ownership and Auditor Risk Response

Based on the data of China's Shanghai and Shenzhen A-share listed companies from 2010 to 2021, this paper investigates the relationship between a company's common institutional ownership and auditors' risk response behavior. The study shows that common institutional ownership drives auditors to increase audit investment and audit fees, which supports the collusive fraud effect. Further analysis reveals that the effect of common institutional ownership on auditor risk response behavior is more pronounced in firms with a higher degree of industry competition as well as in state-owned enterprises, and that Big Four auditors will be more sensitive to the collusive fraud effect of common institutional ownership and respond to this risk mainly by increasing audit investment. This paper not only enriches the research literature on the factors influencing auditors' risk response behavior and the economic consequences of common institutional ownership but also sheds light on how to improve corporate governance and regulate the market order in practice.

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.

Accounting Firm Organization Structure and Audit Risk Management: Evidence from Chinese Domestic Accounting Firms

ABSTRACT Accounting firms play an important role in improving the quality of accounting information and reducing information symmetry risk in capital markets. In this paper, we argue that organizational structure and relevant internal management can affect audit quality and audit risks. We identify three main types of structure in accounting firms: mango-type structure (completely centralized control), banana-type structure (completely decentralized control), and olive-type structure (moderately decentralized control). We manually collect the organizational structure information of domestic accounting firms in China from 2013 to 2019. We find that olive-type firms can manage audit risks in a better manner, as such firms are more likely to issue nonstandard audit opinions and charge higher audit fees based on client audit risks. Our findings would contribute to audit culture and climate literature regarding what changes in control climate can be implemented to influence auditor behavior and improve audit quality. Data Availability: Data are collected from public sources and websites of accounting firms. JEL Classifications: M42; M48; L22; G32; G34.

Public Accounting Firm's Quality Control Standard In Risk-Based Perspective: Is It Important?

Pandemic Covid 19 has impacted every business operation worldwide and increased business risk. Auditors' responsibility to provide audit quality has become more prevalent. This study aims to get empirical evidence of auditor experience, auditor industry specialisation, and audit risk on audit quality during the COVID-19 pandemic. The research methods used quantitative with a survey approach; data gathered by a survey of Auditor. The result finds that during turbulent economic situations, the need for auditor experience and auditor's industry specialists has increased to mitigate the audit risk. Auditor experience and auditor industry specialists were needed to promote audit quality with low audit risk. The study has proved that auditor experience, industry specialisation, and audit risk impact audit quality. Assessing the auditor and public accounting firm using quality control standards from risk-based perspectives is urgently required. Other studies may investigate the issues using qualitative methods to get a deeper understanding.

Audit firm informatization and audit quality during COVID-19

PurposeCOVID-19 has forced audit firms to change the way they operate. One change has been to rely more on information technology (IT) and IT human capital to overcome COVID-19-related challenges. We refer to audit firms’ use of these two resources as audit firm informatization (AFI). It is important to understand whether AFI helps audit firms address challenges created by the pandemic. Thus, this study examines the impact of AFI on audit quality during the COVID-19 pandemic in China with a focus on IT human capital.Design/methodology/approachWe use a mixed-methods approach. First, we perform multivariate regression analyses on archival data. Specifically, we investigate the relationship between IT human capital and audit quality and the two mechanisms (i.e. improved efficiency and reduced audit risk) underlying the relationship. We also investigate how this relationship is moderated by features of clients, audit firms and individual auditors. Then we use interviews to corroborate the results of our regression analyses.FindingsOur analyses of archival data show that IT human capital positively affects audit quality through improved efficiency and reduced audit risk and that this positive impact is more pronounced for clients in non-manufacturing industries, those with a more opaque information environment, audit firms with greater industry coverage and individual auditors with less experience. Our interview data indicate that audit firms with more advanced AFI and a higher level of IT human capital in particular are less disrupted by the pandemic and are better able to use IT to address challenges associated with COVID-19. Furthermore, the results confirm that improved efficiency and reduced audit risk are the mechanisms through which AFI enhances audit quality. Finally, we identify issues associated with the use of IT.Originality/valueThis study is the first to investigate how IT human capital (and by extension AFI) influences audit quality in the context of the COVID-19 pandemic. Our findings should be of interest to practitioners and setters of auditing standards.

Does environmental information disclosure regulation improve environmental governance? Evidence from China

This study examines the effectiveness of Chinese environmental information disclosure (EID) regulations. We find that EID regulations improve firms' EID quality (i.e., exist information effect) and foster firms' green behavior (i.e., exist green effect). Mechanism analysis shows that due to lower audit risks, heavy-polluting firms are charged lower audit fees after the implementation of EID regulations; and due to less managerial myopia, heavy-polluting firms significantly increase green investment and green innovation following EID regulations. Additional heterogeneity analysis shows that these information and green effects can be strengthened by institutional environment factors, such as media coverage, audit quality and political cost.

FP7.8 - Perioperative risk prediction for Emergency Laparotomy in Adults, using the National Emergency Laparotomy Audit (NELA) and the American College of Surgeons National Surgical Quality Improvement Program (ACS-NSQIP) risk prediction tools – an Eastern European perspective

Abstract Background Worldwide, emergency laparotomy (EL) is one of the most common procedures. Having an actual 30-day mortality (30-dm) of 10 to 15%, EL has a high mortality rate, particularly in patients &amp;gt;70 years old. Preoperative risk assessment and stratification can improve outcomes. The American-College-of-Surgeons-National Surgical Quality Improvement Program (ACS-NSQIP) and the National Emergency Laparotomy Audit (NELA) risk prediction tools are the most used risk calculators, but both can under or overpredict. Methods This is a single-center, retrospective, cohort study that looked at the correlation between actual and predicted 30-dm using NELA and ACS-NSQIP in adults ≥18, following EL, over 2 years, in a single-tertiary-center from Romania. The primary outcome was defined as the correlation between actual 30-dm and NELA or ACS-NSQIP predicted 30-dm. Statistical analysis was performed using GraphPad-Prism 10.1.1. and Stata18. Results 207 cases were analyzed. Male/female ratio was 1.49; age 65 years (50;77); BMI 26.25kg/m² (23.01;28.35); preoperative lactate 1.8 mmol/L (1.5;3.4); ASA grade 3 (2;4) clinical frailty score 4 (3;4); and Charlson Comorbidity Index 5 (3;8). Actual 30-dm was 31.4% with NELA and ACS-NSQIP predicted 30-dm of 5.78% (1.84;21.48) and 5.5% (1.2;24.2) respectively. NELA and ACS-NSQIP predicted 30-dm expressed a strong positive correlation, R²=0.88; p&amp;lt;0.0001. Both NELA and ACS-NSQIP predicted 30-dm showed a significant positive correlation with actual 30-dm: R²=0.33, p&amp;lt;0.0001; and R²=0.41, p&amp;lt;0.0001 respectively. All data is presented as Median + IQR. Conclusion In a Romanian setting both ACS-NSQIP and NELA risk calculators underpredicted 30-dm, despite expressing a strong positive correlation with actual 30-dm.

Accounting Information Technology and its Role in Raising the Level of Professional Performance of Internal Auditing

This research aims to know the role of information technology in improving the performance of internal auditing, by highlighting the obstacles facing the use of information technology during internal auditing and understanding the extent of the internal auditor's awareness, Due to the importance that provides in improving audit services and explaining its role in providing accurate results and large information with high efficiency, in addition to the impact of information technology in reducing internal audit risks as a result of the large size of economic units and the diversity of their legal forms due to the great development occurring in all economic sectors. This led to the need for the internal auditor to provide services with the highest quality, one of the most important results that were reached is that information technology works to improve auditing procedures and reducing the risk by monitoring the computer performance daily with operational activities and confidentiality of information and the inability to access important information for unauthorized persons. Among the most important recommendations is the necessity for internal auditors to be Awareness of the importance of this technology when performing auditing services and reducing the risk when monitoring computer performance daily with operational activities, the confidentiality of information, and the inability to access important information except for authorized persons. The research concluded that the hypotheses are correct.