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

Audit risk assessment model

Purpose: The purpose of this study is the development of an audit risk model based on the decomposition of classical Audit Risk Model (ARM) with the addition of elements to assess the risks associated with various aspects of the task. Design/Methodology/Approach: The classical ARM is the basis of our model. The factors of the first and second order in the proposed model are the same as in the classical ARM, namely, the risk of significant distortion and the risk of non-detection. The risk of material misstatement is disaggregated into inherent and control risks. We included in the list of second-order factors that affect the value of risk of significant distortion, the risk of material misstatement of financial statements due to unfair acts. Findings: The paper contains the classic ARM's development analysis and the current researches in audit risk modeling review. We formulated the requirements to desired ARM's characteristics based on analysis we made. The ARM modification by classical conceptual model decomposition to the level of simple binary statements is presented. We describe the main structural elements of the developed model and their interrelations. Practical Implications. The presented disaggregated ARM can be used as a methodological basis for assessing audit risk in the course of fulfilling assignments for the audit of financial statements. Originality/Value: The classical ARM author's modification has been developed with the aim to its adapting to a practical risk assessment through logical-probabilistic modeling.peer-reviewe

INTEGRITAS KLIEN, PENILAIAN RISIKO AUDIT DAN KEABSAHAN BUKTI AUDIT

The purpose of this study is to examine the influence of client integrity and audit risk assessment toward audit evidence validity by exploring Integrity Theory, Risk Theory, and Evedence Theory. The data used in this study are primary data by collecting data through questionnaires. A total of 80 auditors (respondents) who works in the Office of Audit Board of Indonesia Representative of South Sulawesi were selected as a sample of this study. This study found that client's integrity positively influence validity audit evidence. It indicates that the higher integrity lead to higher validity audit evidence. In contrast, audit risk assessment does not influence validity audit evidence. It indicates that the higher audit risk assessment does not lead to higher influence validity audit evidence. This study also found that client's integrity and audit risk assessment together can increase the validity of audit evidenc

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

[EN] 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.Porcuna-Enguix, L.; Bustos-Contell, E.; Serrano-Madrid, J.; Labatut-Serer, G. (2021). Constructing the Audit Risk Assessment by the Audit Team Leader When Planning: Using Fuzzy Theory. Mathematics. 9(23):1-22. https://doi.org/10.3390/math923306512292

Особенности оценки аудиторского риска операций с деривативами

PECULIARITIES OF THE AUDIT RISK ASSESSMENT ON DERIVATIVES L. MASKO, P. PANKOVРассмотрены особенности оценки аудиторского риска операций с деривативами при проведении аудита бухгалтерской (финансовой) отчетности в Республике Беларусь. По результатам исследования на основе международной практики в области производных финансовых инструментов предложены критерии, которые учитывают специфику деривативов и позволят более полно оценить аудиторский риск при наличии у аудируемого лица операций с данными инструментами.= The features of the audit risk assessment of transactions with derivatives during the audit of the accounting (financial) statements in the Republic of Belarus have been considered. The results of the study on the basis of international practices in the field of derivatives allowed the author to propose the criteria, which take into account the specifics of those instruments and give the opportunity to assess the audit risk on derivatives in more detail

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

Evaluation of internal audit activity effectiveness in risk assessment of anti-money laundering area: a case of “Latvian Bank N"

Due to recent AML violation cases occurred in financial institutions within Baltic States (Estonian Danske Bank, ABLV Bank AS and Versobank AS) and expressed concerns on Banks’ Internal Audit activity within AML area, the author sees the necessity for assessment of Internal Audit activity within AML area in order to determine the level of adequacy of AML regulatory changes within the risk assessment and potential gaps in risk assessment of AML area. The research focuses on AML compliance with the constantly evolving and increasingly more complicated regulatory requirements and evaluation of organizational part of IA activity using an example of a Latvian Bank N. The aim of this research is to investigate completeness of Internal Audit risk assessment in accordance with recent AML regulatory changes. This research also compares the IA organizational process that affects all banking areas between a Latvian Bank N and an Estonian practice. This research relies on qualitative methods. Qualitative methods include face-to-face interviews with Board Members of Latvian Bank N, AML Internal Auditor of Latvian Bank N and telephone interviews with Estonian IA Experts. Also, involves documentary analysis of Latvian Bank N internal audit risk assessment conducted in 2017 for the implementation in 2018. The conducted investigation showed that IA activity has certain deficiencies and shortcomings in relation to AML regulatory changes reflection in IA risk assessment for AML area, and for overall IA organizational process organization that is crucial for audits organization and conduction not only in AML area, but for all Latvian Bank N and other Latvian Banks’ activities areas. Elimination of these deficiencies will help to achieve full reflection of AML regulatory changes and thereby mitigate the risks that bank processes which are affected by these regulation changes are not sufficiently assessed within the Internal Audit Risk Assessment. In addition, elimination of the deficiencies identified in relation to IA organizational processes will lead to increase of conformance in accordance with International Standards for the Professional Practice of Internal Auditing (pub. the Institute of Internal Auditors, 2017) and, as a result, will strengthen and improve the IA activity effectiveness that is within Internal Audit department and Bank’s interest. Many of these results are likely to apply not only in the particular bank on which the research is focused, but also to other banks in Latvia. Thus, the research has practical implications in formulating common risk management tactics and methods that could be applied across the banking sector

The Use of Analytical Tools in the Conduct of Internal Control Procedures

The work is devoted to the study of the problems of management, the activities of international companies in solving urgent problems of risk assessment, international cooperation of companies in the development and use of software and the applications of the Business Intelligence class, Data Quality and Business Analytics, the role of SAS in the domestic market. The first part is devoted to the activities of international companies in the field of risk assessment. The second part is devoted to the review of analytical products of SAS.   Keywords: audit, risk assessment, in-depth analytics, business intelligenc

DETECTING AND REPORTING THE FRAUDS AND ERRORS BY THE AUDITOR

Responsibility for preventing and detecting fraud rest with management entities.Although the auditor is not and cannot be held responsible for preventing fraud and errors, in yourwork, he can have a positive role in preventing fraud and errors by deterring their occurrence. Theauditor should plan and perform the audit with an attitude of professional skepticism, recognizingthat condition or events may be found that indicate that fraud or error may exist.Based on the audit risk assessment, auditor should develop programs to audit procedures by whichto obtain reasonable assurance that the financial statements in their entirety, all significant errorsand fraud have been identified. It is expected that the auditor to implement procedures that willlead to the discovery of errors or fraud without significant impact on the financial statements cannot be held responsible for undetected such irregularities.The auditor should communicate with the management of his client. He should ask the managementinformation concerning any significant fraud or error has been detected in order to detect keyproblems that could lead to certain activities, the implementation of audit procedures more thanusual However the auditor faces the risk inevitable that some significant errors to be detected, evenif the audit is planned and done properly.fraud, error, tests, audit