Shaping an audit strategy based on mapping and spectral risk analysis

Subject. This article deals with the practice of forming an audit strategy in conditions of uncertainty of parameterization of probability and significance of risks of material misstatement of financial statements. Objectives. The article aims to substantiate a risk-based audit strategy construction using the risk heat map tool and determining the necessary and sufficient actions of the auditor in response to the assessed risks. Methods. For the study, we used a content analysis, systematization, classification, and the abstract-logical and data visualization graphical methods. Results. Based on the content analysis of the revised ISAs that regulate audit risk, the article clarifies the aspects of risk identification, assessment, and fixing, the parameters of positioning and visualization of risk factors depending on their likelihood and significance. The article introduces a scenario mechanism for sufficient appropriate actions of the auditor in response to specific risk factor characteristics. It develops and presents a method of spectral analysis of a complex of assessed risk factors of material misstatement of reporting in order to build up an audit strategy. Conclusions and Relevance. The developed models of the audit risk heat map and the generalized map of the spectral risk analysis are the most rational tools for the formation of a scientifically based audit strategy with emphasis on the high-risk areas. The results of this article can be used in the practical activities of auditors and audit organizations, as well as internal auditors seeking to plan control measures using digital methods most effectively.

Risk-based approach to building an audit strategy of accounting estimates on personnel costs

The article systematizes and classifies, according to the degree of verifiability, the types of accounting estimates for personnel costs, which make it possible to ensure the rationality of the audit strategy and the effectiveness of procedures in response to the assessed risks.

A blockchain-based privacy-preserving 5G network slicing service level agreement audit scheme

Network slicing, as a key technique of 5G, provides a way that network operators can segment multiple virtual logic on the same physical network and each customer can order specific slicing which can meet his requirement of 5G service. The service level agreement of network slicing (NS-SLA) of 5G, as a business agreement signed between the network operators and the customers, specifies the relevant requirements for the 5G services provided by the network operators. However, the authenticity of auditing results may not be guaranteed and the customer’s data may be leaked in the existing NS-SLA audit scheme. In this paper, a blockchain-based 5G network slicing NS-SLA audit model is proposed to address the above problems. The blockchain is applied as a public platform and all the dual monitored service parameters will be stored on the blockchain to ensure the authenticity of data. A trapdoor order-revealing encryption algorithm is introduced to audit strategy, which can encrypt the monitored parameters, realize the comparison over ciphertexts and prevent the privacy of data from leaking. Besides, an NS-SLA audit smart contract is designed to implement the audit task and execute corresponding punishment strategies automatically. We make experiments to exam the cost of the blockchain-based system and the results found clear support for the feasibility of the proposed model.

Determining a typology of behavioral traits indicating the inclination to material misstatement risk among those charged with financial reporting

Subject. We typified persons charged with financial reporting, who are more than inclined to misstatement risk due to fraud. Objectives. We herein develop a methodological framework for determining types of people charged with financial reporting. The typification is based on behavioral traits of the inclination to material misstatement risk. Methods. We applied multivariate statistical methods of factor and cluster analyses on the basis of empirical data we gathered in the survey of 515 employees charged with financial reporting. Results. As we found, if a person charged with financial reporting has some behavioral traits admitting the possibility of taking risk and an expectation of remaining unpunished and a pathological monetary type in case of legislative illiteracy, these signs mean the inclination to material misstatement risk due to fraud. Such people account for nine percent of the sample. One third of the sample is made up of people who are not inclined to risk at all. The neutral group in terms of the above risk comprises slightly more than one third. The remaining people (about 23 percent) can be qualified as suspicious in terms of their inclination to the above risk, which should be a reason for additional auditing procedures. Conclusions. Being not very difficult, the proposed methodological framework helps improve the efficacy of risk assessment procedures during audits. From perspectives of the inclination to business risk, determining types of employees charged with financial reports allows to decide on the necessity of additional auditing procedures when setting up the audit strategy and planning to cushion the material misstatement risks due to fraud.

Big data and data analytics in auditing: in search of legitimacy

Purpose This study aims to analyze the utilization of big data and data analytics (BDA) in financial auditing, focusing on the process of producing legitimacy around these techniques, the factors fostering or hindering such process and the action auditors take to legitimate BDA inside and outside the audit community. Design/methodology/approach The analysis bases on semi-structured interviews with partners and senior managers of Italian audit companies. Findings The BDA’s legitimation process is more advanced in the audit professional environment than outside the audit community. The Big Four lead the BDA-driven audit innovation process and BDA is used to complement traditional audit procedures. Outside the audit community, the digital maturity of audit clients, the lack of audit standards and the audit oversight authority’s negative view prevent the full legitimation of BDA. Practical implications This research highlights factors influencing the utilization of BDA to enhance audit quality. The results can, thus, be used to enhance the audit strategy and to innovate audit practices by using BDA as a source of adequate audit evidence. Audit regulators and standards setters can also use the results to revise the current auditing standards and guidance. Originality/value This study adds to the literature on digital transformation in auditing by analyzing the legitimation process of a new audit technique. The paper answers the call for more empirical studies on the utilization of BDA in financial auditing by analyzing the application of such techniques in an unexplored operational setting in which auditees are mainly medium-sized enterprises and family-run businesses.

PLANNING AND STAGES OF AUDIT OF INTANGIBLE ASSETS OF THE ENTERPRISE

The article has examined the essence of the definition of «planning» and «audit planning». The place and importance of planning in the audit process are considered: from the standpoint of ISA and the approaches of domestic scientists, as well as in the context of the audit of intangible assets. The key requirements of ISA 300 «Planning an Audit of Financial Statements» and the possibility of their application in the audit of intangible assets are analyzed. Scientific approaches to determining the stages of audit of intangible assets are studied. As a result of the study, the stages of audit of intangible assets were identified through the projection of the general stages of the audit: preparative, intermediate, physical inspection, audit of financial statement line items, final. It is proposed to consider the audit of intangible assets from two positions: the audit of financial statements and the audit of sustainable development. Emphasis on the importance of the transition to a sustainable development audit, which also includes confirmation of non-financial indicators, is placed. The algorithm of planning the audit of intangible assets in the conditions of sustainable development is determined. The difference between the purpose and objectives of the audit of intangible assets in terms of traditional audit and audit in terms of sustainable development is demonstrated. It is proved that the accents in the development of the audit strategy and detailed plan will depend on the chosen goals and objectives. The main objects of control in the audit of intangible assets are identified. The importance of legal issues (especially protection of intellectual property rights) in the audit of intangible assets and the need for staff with appropriate qualifications is underscored. The audit strategy and plan are considered as elements of documentary evidence of the audit. Factors that slow down the implementation of the audit of sustainable development are identified. The relevance of the concept of «intangible asset audit program» is considered. It is proven that a detailed audit plan for intangible assets should take into account specific procedures, taking into account the nature of intangible assets. At the same time, formalism in drawing up a plan is unacceptable. The consistent list of audit procedures for formation of strategy and plan of audit of intangible assets in the conditions of sustainable development is outlined. It is proved that audit in the conditions of sustainable development expands the list of procedures.

PROFESSIONAL PROCESS APPLIED IN FINANCIAL AUDITING MANAGEMENT IN COUNTY GOVERNMENTS, KENYA

The purpose of the study was to investigate the professional process that is applied in financial auditing in 47 County governments in Kenya. The researcher exploited the following research objectives: establish the standard measure of financial auditing in various county governments departments, establish the qualifications possessed by county government auditors, determine the quality of work done on financial auditing by internal County auditors in county governments and establish the overall audit strategy and development plan. The researcher employed three theories: Scientific theory(Mautz and Sharaf, 1961), that defines the purpose for serious and substantial investigation into the possibility and nature of auditing being the hope that will provide the solution of problems found with some difficulty, Policeman theory(Hayes et al., 1999) that states that the auditors job is to focus on arithmetical accuracy, Theory of Inspired confidence which states that the demand for audit services is the direct consequence of the participation of the outside stakeholders in the company. The target population was 10,000 people whose sample size was 284 gotten from use of Krejicie and Morgan 1979). The research design descriptive survey and descriptive research methodology. The sampling techniques included purposive sampling techniques and judgment sampling techniques that required meeting respondents with the knowledge of the study and meeting respondents accidentally respectively. Research instruments included questionnaire4s interview schedule and documents analysis. Pilot study was conducted to pre-test and post-test research instruments for their validity and reliability.