INTERNATIONAL REGULATORY ENVIRONMENT

International regulatory environment

International regulatory environment

The paper will compare foreign direct investment environment and regulations. This paper will define foreign direct investment and discuss advantages and disadvantages. The paper will also relate stage of foreign direct investment to business opportunities. (Reed 2002:12)

Risk, plays the large part in world of Auditing. Audit risk, represents risk to an auditor or an audit firm, as risk of paying damages to the client may arise out of negligent work when trying to show the true and fair view of the set of company accounts. All audit work involves some level of risk; this may be because the set of company accounts have been misstated due to error or fraud, or auditor failed to detect errors or fraud. In addition, these problems may have occurred due to inadequate sample sizes when determining level of risk or auditor failed to use proper auditing policies. (Central Intelligence Agency 2009:1)

To evaluate level of risk related to specific areas of audit, three components can help. The first is Inherent risk were environmental factors, (background knowledge of client and were past audits indicate no difficulties) are concidered against whether or not they would lead to the material error, before considering 'function of internal controls'. Next is Control risks were 'system of internal controls' is assessed against possability of preventing material error, or detecting it in time using internal controls. Last is Detection risk were auditors procedures may fail to detect the material error not picked up by internal controls.

This report explains why risk-based approach has become popular with external auditors and how it has been linked to materiality and sampling levels. (Michigan State University 2009:23 )

The audit risk approach has grown significantly in recent years. This is the result of auditing firms making their audit work more cost effective, whilst still maintaining audit quality. Compared to older substantive testing and system based auditing, risk based auditing takes account of substantive test risks and includes, inherent risk, control risk, detection risk and sampling risk as well as other risk tests not mentioned in this report (i.e. analytical control risk). This system of assessing risk and focusing audit on high-risk areas minimises auditor's risk against paying damages to the client through negligent work.

Assessing risk of material misstatement at financial statement level as well as at planning stage, adds to and clarifies direction on performing the combined assessment of inherent, and control risk, leaving ability for auditor to assess other risk factors in an audit. This approach to auditing has also changed view of substantive procedures performed by auditors. For example, use of statistical sampling has significantly reduced, but remains an important part of auditor's substantive procedures '...and one they wish to ensure is efficient and effective'. Sherer & Turley (1998)

Sherer & Turley (1998 p251) suggest that in order to improve risk-based approach, ways must be identified '...in which auditors' judgement of inherent risk and control risk can become more accurate and consistent'. (Principles of External Auditing 2009:10)

In market societies, people routinely ...