AUDIT RISK ASSESSMENT

Audit Risk Assessment

Abstract

The analysis of risks is an important tool for the job of the auditor. Risk assessment is equally important function for maintaining the quality of service. This paper explores the various techniques of the diagnosis of these risks to ensure their possible manifestations. In this paper we describe elements that give light to the above statement using evidence from the literature.

Audit Risk Assessment

Introduction

Risk is a real world condition in which there is exposure to adversity formed by a combination of environmental circumstances that have a possibility of losses (Connor & Knechel 2001). For this reason all the companies producing goods or services should address the studies to ensure the identification of risks as a key element to ensure the quality of the service or product. The profound changes taking place in the business world are the roots of uncertainty and risks faced by organizations. Mergers, global competition, technological advances, deregulation, and new regulations, pose new challenges for auditors (Connor & Knechel 2001). The management of risks in a comprehensive framework implying the use of strategies, processes, people, technology and knowledge aligned to handle all the uncertainty that an organization faces (Rittenberg, Johnstone & Gramling 2010). On the other hand the risks and opportunities go hand in hand, and the key is to determine the potential benefits of these on the risks. This paper extensively explores the risk assessment tools and techniques used by auditors to ensure effective controls and governance.

Discussion

Audit has developed itself from an exhaustive verification of the transactions in order to detect frauds, to an investigation in order to detect the main entities risks and to evaluate internal control which is organized and exercised at this level. The result of the major accounting scandals and related reforms is a much higher "bar" for boards and audit committees. In this environment, it is vitally important for internal auditors to do all they can to support the governance activities of the organization. In fact, we maintain that this is one of the most important roles of internal audit-supporting the board and audit committee in their governance efforts (Black & Kim 2006 366-413). If the internal audit function has limited interaction at the board level and is not viewed as a key contributor to the board's efforts, then we believe that internal audit has not lived up to its potential as a contributor to effective governance.

In some cases, a move toward providing more governance-related support may require internal audit to alter the scope of its activities to provide greater value to a well-functioning board. In other cases, this may require internal audit to advise the board and audit committee on how to structure their governance processes to enhance the oversight of the organization. A spirit of collaboration and shared mission between the board, the audit committee, and the internal auditors will help to maintain quality corporate governance and build investor confidence. In the end, if governance is weak, investors lose faith (Claessens 2006 ...