Organizing internal audit at enterprises: a risk-based approach

The paper investigates organization of internal audit at risk-oriented enterprises. The differences between traditional and risk-oriented approaches of internal audit at enterprises are considered. The risk-oriented internal audit allows us to investigate not only financial risks that arise in internal control and accounting, and the risks of differentiated audit are to evaluate various risks groups: financial, operational, technical, informational, etc. Each group has a corresponding hierarchy. Thus, financial risks include accounting risks (second level), which in accordance with IFRS and GAAP requirements include three groups of economic risks: market risk, credit risk and risk of main activity - third level. The risk-oriented internal audit allows you to evaluate the risks at the level of the enterprise divisions. The introduction of the principles and postulates of the concept of "liability centers" in the enterprise allows, for example, in the implementation of expert risk assessment, use personal opinion of managers and specialists of various units in the formation of the chain of values of the enterprise. The risk-oriented internal audit focuses on assessing risks that are not enough or excessively controlled. At the same time, risks are taken into account by the level of significance on the Luckyert scale: minor, moderate and large. But for each subdivision, the level of materiality can be different - it is necessary to calculate the integral risk for the enterprise in general. The risk map of the financial department of the enterprise is built on the basis of the concept of stakeholders. It has been proved that the risk map allows monitoring of the risks of significant distortion of accounting (financial) and non-financial reporting in terms of responsibility centers. The prospects for further research are determined: the development of internal audit documents using the principles of risk-oriented approach - an audit plan, audit program, audit report, schedule document circulation of internal audit service, etc.

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Do Chief Audit Executives Matter? Evidence from Turnover Events

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-2020-112 ◽

2021 ◽

Author(s):

Gerald J. Lobo ◽

Meng Lyu ◽

Bing Wang ◽

Joseph H. Zhang

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Stock Exchange ◽

Internal Audit ◽

Negative Association ◽

Control Quality ◽

Small And Medium Enterprise ◽

Financial Expertise ◽

Medium Enterprise ◽

Internal Transfer

We investigate the chief audit executive’s (CAE) internal audit supervisory role by examining the change in internal audit monitoring effectiveness following the turnover of CAEs. Using a sample of firms listed on the small and medium enterprise board of China’s stock exchange, we find that CAE turnover is accompanied by a reduction in financial reporting/internal control quality and that the reduction is more pronounced for firms whose successor CAEs have lower financial expertise than their predecessors. Further analysis shows that the negative association with financial reporting/internal control quality is stronger when the turnover is for personal reasons than when it is for internal transfer of the CAE. These findings are robust to a battery of sensitivity checks, including placebo tests and matching diagnostics. Our results highlight the importance of the CAE for a firm’s internal audit functions.

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How Effective are Organizations' Internal Controls? Insights into Specific Internal Control Elements

Current Issues in Auditing ◽

10.2308/ciia-50146 ◽

2012 ◽

Vol 6 (1) ◽

pp. A31-A50 ◽

Cited By ~ 22

Author(s):

Dana R. Hermanson ◽

Jason L. Smith ◽

Nathaniel M. Stephens

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Financial Services ◽

Audit Committee ◽

Internal Audit ◽

Internal Controls ◽

Component Level ◽

Public Companies ◽

Tone At The Top ◽

Survey Responses

SUMMARY Based on survey responses from approximately 500 Chief Audit Executives (CAEs) and other internal auditors, this article provides an insider's view of the perceived strength of organizations' internal controls (i.e., internal control over financial reporting) in the Control Environment, Risk Assessment, and Monitoring components of the Committee of Sponsoring Organizations' (COSO 1992a) Internal Control—Integrated Framework. Although the respondents largely rate control strength as relatively high, we identify several areas for potential improvement of internal controls, especially related to assessing the “tone at the top,” as well as following up on deviations from policy and management override of controls. In analyzing individual control elements, we find that public companies' controls are consistently rated as more effective than those of other organizations. We also find a number of interesting differences across key industries, especially in the Monitoring component, where banks and other financial services firms appear to have more robust Monitoring controls than do healthcare and other services firms. The component-level analysis reveals that internal control component strength is positively related to the CAE reporting primarily to the audit committee, public company status, and the average tenure of the internal audit function staff, among other findings. Based on the survey findings, we describe key implications relevant to internal and external auditors, accounting researchers and educators, and management.

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¿Son las características del comité de auditoría importantes para el presupuesto de auditoría interna en empresas de Malasia?

Contaduría y Administración ◽

10.22201/fca.24488410e.2018.1480 ◽

2018 ◽

Vol 63 (2) ◽

pp. 32

Author(s):

Redhwan Al-Dhamari ◽

Almahdi Almagdoub ◽

Bakr Al-Gamrh

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Committee ◽

Negative Impact ◽

Internal Audit ◽

Internal Governance ◽

Policy Makers ◽

Control Functions ◽

Study Support ◽

Recent Policy

An audit committee is viewed as an essential self-regulatory internal governance instrument that is expected to provide an oversight role over the entire process of financial reporting. An internal audit is also one of the corporate governance cornerstones that is essential for the effective monitoring of the operating performance of internal control. To ensure its effectiveness, the audit committee monitors the resources available to the internal audit, and internal control functions should be directly reported to the audit committee. This study analyses the effect of audit committee characteristics on internal audit budget in Malaysia, where data on internal audit budget is available and how well audit committee monitors the internal audit function is questionable. Our study also opens the door to an unanswered question, that is, whether an audit committee index is related to internal audit budget. Data of 96 companies listed on Bursa Malaysia for a three-year period, 2012-2014, was utilized to achieve this end. The regression results show that audit committee meeting and index are significantly and positively associated with internal audit budget. They also indicate that audit committee tenure has a significant and negative impact on internal audit budget. The findings of the study support the recent policy initiatives in relation to audit committee and internal audit. They also serve as a wake-up call to policy makers in requiring more committed and skilled members on the audit committee.

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The role of effective audit committee in strengthening the financial reporting: Evidence from Jordanian listed companies

Corporate Ownership and Control ◽

10.22495/cocv9i3art5 ◽

2012 ◽

Vol 9 (3) ◽

pp. 59-68 ◽

Cited By ~ 2

Author(s):

Mo’taz Amin Al-Sa’eed ◽

Soud M. Al-Mahamid

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Committee ◽

Internal Audit ◽

Listed Companies ◽

International Standards ◽

Future Research ◽

External Audit ◽

Cross Sectional ◽

Study Results

This study aims to understand the features of an effective audit committee and its role in strengthening financial reporting. A questionnaire based survey was circulated to public listed companies on the Amman Stock Exchange (Banking, insurance, and financial institutions). The study was aimed at internal audit managers and finance managers. Out of 156 questionnaires, we received 110 back which represents a 71% response rate. The study results show that the research respondents have a good level of education and experience. In addition, there is a relationship between internal controls, international standards on auditing, institute of internal audit; Jordan securities commission requirements, external audit, understanding of audit committee functions, and financial reporting. Furthermore, the internal control, international standard on auditing and institute of internal audit, Jordan securities commission requirements, External audit, understanding of audit committee functions can explain a significant amount of the variability in financial reporting. Finally, the research results also show that age and gender make a difference for our respondents when they evaluate financial reporting. The study like other cross sectional studies is not free of limitations. Managerial implications and new avenues of future research are supplied. Future research also can borrow the research model and apply a longitudinal study to solve the cross sectional study problems.

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PELAKSANAAN FUNGSI APARAT PENGAWAS INTERN PEMERINTAH (APIP) UNTUK MENUNJANG TINGKAT KEWAJARAN LAPORAN KEUANGAN PEMERINTAH KOTA MANADO

JURNAL RISET AKUNTANSI DAN AUDITING "GOODWILL" ◽

10.35800/jjs.v7i2.13549 ◽

2016 ◽

Vol 7 (2) ◽

Author(s):

Merry Inggrid Siwy ◽

David P.E. Saerang ◽

Herman Karamoy

Keyword(s):

Control System ◽

Local Government ◽

Financial Reporting ◽

Internal Control ◽

Financial Management ◽

Internal Audit ◽

Financial Statements ◽

Internal Auditor ◽

Internal Control System ◽

The Government

Internal Audit is the whole process of audit activities, the Review, evaluation, monitoring and supervisory activities other against the implementation of tasks and functions of the organization in order to provide reasonable assurance that the activities have been carried out in accordance with the benchmarks that have been set effectively and efficiently for the benefit of the leadership to Realize good governance.Accountability and transparency in the new government could be achieved if all levels of leadership controlling activities on the overall activities in their respective agencies . Internal control system ( SPI ) is a process that is integral to the actions and activities carried out continuously by the management and all employees to provide reasonable assurance on the achievement of organizational goals through effective and efficient , the reliability of financial reporting , the safeguarding of state assets, and compliance with legislation. To strengthen and support the effectiveness of internal control over the SPI made implementation of tasks and functions of government agencies including state audits carried out by the internal control official Government ( APIP ) .The auditor's responsibility to detect fraud or irregularity embodied in the planning and execution to obtain reasonable assurance about whether the financial statements have been prepared in accordance with established standards.The purpose of this study was to analyze the functions of Government Internal Supervisory Apparatus (APIP) / Internal Auditor in supporting reasonable levels of Local Government Finance Report Manado City. Respondents were selected are few skilled examiner at the office of the Inspectorate of Manado. Approach Using Qualitative methods Ethnography.APIP functions that work well to prevent fraud , to produce valuable output to be input to the external auditor , the executive and the legislature to improve financial management and accountability in the area of the future . Eksternal Auditor may use the results from the monitoring APIP mainly reviews the financial statements of the government , supporting the management of local government in implementing the recommendations and improvements Internal control system . APIP professional and independent encourage increased transparency and accountability in financial management to improve the fairness of the financial statements . Keywords: Government Internal Supervisory Apparatus, fraud detection, the fairness of the financial statements

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LEGAL FORMS OF CONTROL AND SUPERVISION OF STORAGE AND OF EFFECTIVE USE OF STATE PROPERTY BY PARTICIPANTS OF ECONOMIC RELATIONS

Economics and Law ◽

10.15407/econlaw.2021.03.003 ◽

2021 ◽

pp. 3-9

Author(s):

V.S. Shcherbyna ◽

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Internal Audit ◽

The State ◽

State Enterprise ◽

Budget Process ◽

Economic Relations ◽

Business Entities ◽

Legal Forms ◽

Effective Use

The main legal forms of control and supervision over the preservation and effective use of state property by participants in economic relations, which are considered as one of the elements of the legal regime of state property, are studied. According to the results of the study, the following main legal forms of control and supervision over the preservation and effective use of state property by participants in economic relations are identified: a) control by authorized bodies over compliance with the contract concluded with the head of the state enterprise; head of the preservation and effective use of state property; b) control by the State Property Fund of Ukraine over the use of leased integral property complexes of state enterprises and leased state property; c) accounting and financial reporting of business entities, as well as control and supervision over their condition and reliability; d) audit of financial statements; e) state financial audit; f) internal control and internal audit in the budget process. It is noted that the current legislation does not make a clear distinction between the functions of control and supervision, especially in cases where it concerns the powers of authorized public authorities, which in accordance with Part 2 of Art. 19 of the Constitution of Ukraine are obliged to act only on the basis, within the powers and in the manner prescribed by the Constitution and laws of Ukraine.

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Analysis and diagnostics of business risks of the company: forecasting and control of probability of bankruptcy

Russian Journal of Management ◽

10.29039/2409-6024-2019-7-4-91-95 ◽

2020 ◽

Vol 7 (4) ◽

pp. 91-95

Author(s):

Nataliya Kazakova ◽

Marina Bobkova

Keyword(s):

Internal Control ◽

Business Processes ◽

Internal Audit ◽

Business Continuity ◽

Financial Risks ◽

Computer Environment ◽

Probability Of Bankruptcy ◽

And Control ◽

Solvency Assessment ◽

Analytical Tools

The article discusses the author’s methodology and analytical tools for assessing business risks and forecasting the business continuity (probability of bankruptcy) of companies with the possibility of its implementation in a computer environment. The proposed methodology consists of four stages: assessment of financial results; solvency assessment; identification, calculation and assessment of financial risks of the company's business continuity; forecasting changes in the level of risk of business continuity using the developed calculator for calculating risk factors indicators. This technique is recommended for use in audit and consulting activities to assess the continuity of the audited companies, to justify the choice of borrowing companies, bidders and traders, as well as in internal audit systems, internal control, financial control of business processes.

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Penerapan Pengendalian Intern pada 13 UMKM di Bandung

JURNAL ADMINISTRASI BISNIS ◽

10.14710/jab.v10i1.34009 ◽

2021 ◽

Vol 10 (1) ◽

pp. 33-44

Author(s):

Samuel Wirawan ◽

Hamfri Djajadikerta ◽

Amelia Setiawan

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Small And Medium Enterprises ◽

Internal Controls ◽

Financial Reports ◽

Study Approach ◽

Main Activity ◽

Medium Enterprises ◽

The Cost

Micro, small and medium enterprises (MSMEs) as a business sector that supports the country's economy are required to have adequate internal controls to support the achievement of company goals. This research was conducted with a case study approach on culinary business. In general, the companies in this study have implemented adequate internal control components. In terms of achieving company goals, namely financial reporting, the MSMEs studied have made financial reports independently because they consider the cost factor when using expensive consultants and also most of the MSME actors already have accounting skills. However, for tax reports in general, make and reported with the help of consultants due to lack of tax regulations that often change. Regarding the achievement of operating objectives regarding the effectiveness and efficiency of operations, the MSMEs studied are still focused on production activities because production activities are the main activity to provide satisfaction to consumers by utilizing Standard Operating Procedures. Compliance with the applicable rules and laws of the 13 companies studied is varied because it depends on the presence of regulators and whether or not there are strict sanctions and involvement of related parties and bargaining power of stakeholders.Usaha mikro, kecil dan menengah (UMKM) sebagai suatu sektor usaha yang menunjang perekonomian negara dituntut untuk memiliki pengendalian intern yang memadai untuk menunjang pencapaian tujuan perusahaan. Penelitian ini dilakukan dengan melakukan pendekatan studi kasus pada UMKM yang bergerak di bidang usaha kuliner. Secara umum, perusahaan yang diteliti telah menerapkan komponen pengendalian intern yang secara memadai karena adanya keterlibatan pemilik secara langsung pada usaha tersebut. Dalam hal pencapaian tujuan perusahaan yaitu pelaporan keuangan, UMKM yang diteliti sudah membuat laporan keuangan secara mandiri karena mempertimbangkan faktor biaya jika menggunakan pihak konsultan yang mahal dan juga sebagian besar pelaku UMKM sudah memiliki kemampuan akuntansi. Namun untuk laporan pajak pada umumnya, UMKM yang diteliti membuat dan melaporkannya dengan bantuan konsultan karena mereka kurang memahami peraturan perpajakan yang seringkali berubah. Terkait pencapaian tujuan operasi tentang efektivitas dan efisiensi operasi, UMKM yang diteliti masih berfokus pada aktivitas produksi karena aktivitas produksi merupakan aktivitas utama untuk memberikan kepuasan pada konsumen dengan memanfaatkan Prosedur Operasi Baku. Kepatuhan pada aturan dan hukum yang berlaku dari 13 perusahaan yang diteliti bersifat variatif karena tergantung dari adanya pihak regulator dan juga ada atau tidaknya sanksi yang tegas serta keterlibatan pihak – pihak terkait serta daya tawar dari para pemangku kepentingan.

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Assessing Internal Audit with Text Mining

Journal of Information & Knowledge Management ◽

10.1142/s021964921850020x ◽

2018 ◽

Vol 17 (02) ◽

pp. 1850020 ◽

Cited By ~ 1

Author(s):

Georgia Boskou ◽

Efstathios Kirkos ◽

Charalambos Spathis

Keyword(s):

Text Mining ◽

Financial Reporting ◽

Internal Control ◽

Audit Quality ◽

Internal Audit ◽

Internal Controls ◽

Annual Reports ◽

Previous Attempt ◽

Sarbanes Oxley ◽

Audit Information

Recently internal controls, corporate governance and risk management have received a great deal of attention. Regarding internal control, several research studies address the issue of internal audit quality. Noteworthy, according to Sarbanes–Oxley (SOX) the internal controls over financial reporting are assessed by the auditors and the management. In the present study, we assess internal controls over financial reporting by employing Text Mining techniques. We analyse the annual reports of 133 publicly traded Greek Companies. The textual parts of the annual reports that refer to internal audit mechanism are extracted. We adopt a Vector Space model and the term-document matrix records the occurrence frequencies of the terms. By applying feature selection, a set of significant keywords, which are used as predictors, is extracted. The Linear Regression model developed explains the variance of the data and highlights significant predictors. The model manages to successfully assess the internal audit function. By performing PCA, major underlying procedures and concepts related to internal audit quality are revealed. Inspite of the undoubted importance of the assessment of internal audit, no previous attempt has been made to assess internal audit and to extract internal audit information from corporate disclosures by using Text Mining techniques. Our results can be useful to internal and external auditors, managers, company decision-makers, regulators and researchers.

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Can Audit Prevent Fraudulent Financial Reporting Practices? Study of Some Motivational Factors in Two Atlantic Canadian Entities

Issues in Social and Environmental Accounting ◽

10.22164/isea.v4i1.47 ◽

2010 ◽

Vol 4 (1) ◽

pp. 65 ◽

Cited By ~ 1

Author(s):

Mostaq M. Hussain ◽

Patricia Kennedy ◽

Victoria Kierstead

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Control Process ◽

Internal Audit ◽

Motivational Factors ◽

Negative Consequences ◽

Fraudulent Financial Reporting ◽

Audit Process ◽

Reporting Practices ◽

Need To Evaluate

Much as has been written and done to prevent Fraudulent Financial Reporting (FFR) practices but FFR is still exists in the corporate world. It is common to think about FFR practices in large companies for its greater amount of consequences, though such practises have negative consequences in small companies as well. FFR practices raise questions about the legitimacy of contemporary financial reporting process, roles of auditors, regulators, and analysts in financial reporting. This empirical study attempts to investigate the motivational factors of the prevention and detection of FFR through the auditing process. The interviewees were carried out within the entity and proprietary theoretical framework with some accounting related management in two medium-sized organizations in Atlantic Canada in winter 2008. The findings of this research demonstrate that an audit is not enough to prevent and detect FFR. The audit structure needs to be revised and employees need to be educated in order for them to better understand their internal control process, and their own role. Companies need to evaluate their controls and internal audit process instead of relying on the yearly audit. This study found that the most common methods used for FFR are improper revenue recognition, understatement of expenses/liabilities, and overstated and misappropriation of assets.

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