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DEVELOPMENT OF AUDIT RECOMMENDATIONS AND PERFORMANCE IMPROVEMENTS IN THE AUDIT PROCESS
Doctor of Business Administration Udesiani Tea, Doctor of economics Sciences, Professor Dali Sologashvili
Georgia, Kutaisi, Akaki Tsereteli State University
ABSTRACT_
The audit result from the requirements of the International Standards of Audit shall be logically linked to the recommendations issued by the auditors representing the final and necessary products of the audit. Auditor recommends that a significant recommendation should be made to prevent the expected risk and to identify the relevant activities to eliminate the identified deficiencies. These activities should take into account the causes of the violation. According to the International Standards of Audit it is important that the recommendation be developed as a result of close communication with the audit object after the agreement on factual circumstances will be discussed.
Developing practical and result-oriented recommendations aim at simplifying the implementation of the audit object, and on the other hand, should facilitate the correctness of the identified deficiencies, taking into consideration the optimal use of resources. Based on the organizational specificity of the audit object, the auditor is desirable to consider various ways of solving the problem and analyze the advantages and disadvantages of each alternative.
Recommendation of the final and essential product of the audit in compliance with the International Standards of Audit. The whole process of audit serves as an auditor to develop and provide effective and quality recommendations. The correct prerequisite for developing recommendations is the correct formulation of audit results. There must be a logical connection between audit results and recommendations. The recommendation established on such a principle should be argued and fact-strengthened, otherwise the recommendation is not appropriate.
According to International Standards of Audit, audit results should be based on the following key elements:
- Factual circumstance - At this stage the auditor examines the criteria and best practices related to the subject of study. The existing adjective and the deviation of the criterion / best practices and the existing situation, which is called auditory find;
- The reason - For the audit to give a result-oriented recommendation is essential to describe the causes of the audit as indicated by the audit. It is necessary to make recommendations for the elimination of these reasons, which should contain the measures to be taken by the Audit Office in accordance with the recommendation;
- Influence - As a result of audit, when determined what is the difference between the measure and the criterion carried out by the audit object, the auditor should assess the quantitative and qualitative impact of the identified violation where possible. Determination of possible influences is important in the planning stage of the audit, based on professional reasoning, assessing whether it is necessary to study the issue of major audit procedures, establishment of audit results and issue relevant recommendations. If the auditor finds that the impact is not essential, the inconsistencies are not systemic character or are not caused by internal controls, then it is not advisable to give recommendations on it. In this case the auditor may no longer be able to study the issue, formulate the audit results and make recommendations on it. The assessment of the impact is essential for determining the priority of the recommendation and, therefore, a reasonable timeframe for the implementation of the recommendation;
- The Recommendation-Auditor recommends that a significant recommendation should be made to prevent the expected risk and to identify the relevant activities to eliminate the identified
ARTICLE INFO_
Received 10 November 2017 Accepted 28 November 2017 Published 7 December 2017
KEYWORDS
Audit,
Recommendation,
Improvement-oriented,
Implemented,
Concrete,
Cost-Effective,
Understandable,
Constructive
© 2017 The Authors.
deficiencies. These activities should take into account the causes of the violation. According to the standards it is important that the recommendation be developed as a result of close communication with the audit object after the agreement on factual circumstances will be discussed.
Fig. 1.
For the purpose of submitting effective recommendations, it is important to develop key criteria that must meet recommendations. Developing practical and result-oriented recommendations aim at simplifying the implementation of the audit object, and on the other hand, should facilitate the correctness of the identified deficiencies, taking into consideration the optimal use of resources. Based on the organizational specificity of the audit object, the auditor is desirable to consider various ways of solving the problem and analyze the advantages and disadvantages of each alternative.
It is important that the text of the recommendation contain:
- The name of the entity responsible for the implementation of the recommendation - it is necessary to identify the person / organization responsible for the implementation of the recommendation which has the power, liability and capability of its implementation;
- In the text of the recommendation it is necessary to see what this purpose is. It is necessary that the goal is to be specific and measurable.
According to the International Standards of Audit Recommendation should satisfy the following main features:
- Improvement-oriented - Recommendation should be focused on significant shortcomings and clearly reflect the actions that will improve the work process, protect assets, reduce costs or comply with the established criteria;
- Implemented - Recommendation should provide for organizational and financial resources of the audit facility, its competence, legal and other restrictions that may hinder the implementation of the recommendation. In the formulation of the recommendation, the priority and sequence of the activities carried out by the audit object should be considered;
- Concrete - recommendation should not be of general nature. It should be linked to a specific problem that has been identified as an audit. The auditor should specify only the direction of problem solving and not specific measures when issuing a recommendation. The audit object should define the specific ways and responsibilities of the identified violation in the Action Plan for the implementation of the recommendation;
- Cost-effective - The auditor should take into account the possible cost of implementation of the recommendation and benefit received as a result of its implementation. Costs for the implementation of the recommendation shall not exceed the benefit of its performance;
- Understandable - recommendation should be formulated with simple language;
Constructive - Recommendation should be constructively formulated. In the text of the
recommendation, the benefit received as a result of the implementation of recommendations should be shown. Recommendation should not indicate additional measures if the process of elimination of problems has already begun. In such a case, it will be enough to emphasize the significance of this process.
Fig. 2.
In the course of the audit, many types and scales have been analyzed, and in some cases these issues concern the activities of the audit object and constitute the audit problem. Besides, it is possible to deal with illicit or fraudulent risk. In such cases the auditors should discuss the two important features - the implementation of the recommendation and the potential for improvement, as the recommendations for such a breach-disadvantages are most often not satisfied with the above mentioned characteristics. Audit type should be provided for issuing recommendations on the above-mentioned violations, as each audit has its own purpose. In case of efficiency and compliance audits it is necessary condition to consider the relevant audit topic (study subject) and the audit scale.
Recommendation should not be issued if:
- It is obvious that fraud is a risk and this does not arise from the weakness of the internal control system of the audit object;
- This is a non-systemic violation;
- The content of the recommendation goes beyond the audit issue, the aim of the audit and
the scope of the audit;
- The Recommendation refers to general nonconformity and calls upon the audit objective to comply with the requirements of the legislation without refining, analyzing and auditing the reasons.
In the case of issuance of recommendations, it is important that the auditor shall monitor the implementation of the recommendation, in which the trustee must obtain its fulfillment. According to the standards, obtaining credentials can be done as a result of the audited work, as well as the further auditing of the recommendations. Further audit may be conducted on the basis of professional judgment. It is important that the audit object, in agreement with the auctor, draw up the action plan for the implementation of the recommendations, which will detail the procedures and terms required for the desired results.
The implementation of the recommendations should be assessed:
- Activities carried out by the organization to implement recommendations;
- Implementation of the activity in the pre-determined timeframe of the organization;
- Objective achieved by the organization's action plan.
The audit recommends the grouping of recommendations and granting the relevant status within the scope of the implementation of the recommendations. The status can be:
- Current Recommendation - Recommendation can be considered as to the actual date of its implementation;
- Unfinished Recommendation - May be attributable to the recommendation if the audit object does not represent a document confirming the actual implementation of the final
recommendation. Also, if the auditor finds that the audit object has not performed sufficient and appropriate activities under the Action Plan for the implementation of the recommendation;
- Partially executed recommendation - If the Audit objective has been implemented partially implemented, the auditor may consider that the activity partially responds to the pre-determined requirements;
- Performed Recommendation - When an Audit object was implemented, the pre-determined activity was carried out and the auditor deems that this activity fully answers the pre-determined requirements;
- The obsolete recommendation - which can not be achieved is the desired result.
After obtaining the credentials of the recommendation, the auditor is desirable to prepare a report on the implementation of the recommendation, where the benefit received as a result of the recommendation will be detailed. It is important to assess the benefit of the auditor to use a quantitative and qualitative approach, which will reveal the result of the recommendation issued by the objective, between the activities planned and implemented by the object and the achieved results. The recommendations based on these approaches will facilitate simplification of the recommendations provided, and on the other hand ensures the correctness of the identified deficiencies in time and the optimal use of resources.
REFERENCES
1. International Audit Standards (ISA);
2. International Standards of Quality Control (ISQC);
3. International Standard of Audit and Quality Control (2009 Edition);
4. Law of Georgia on Accounting, Reporting and Audit. 2016;
5. Millicip. H "Audit". 7th edition. Translation Shashviashvili.Association "Science and EducationDaily Living". 2002;
6. N. Rinkiashvili, in the audit financial control system, Zh. "Economics", N7, 2009;
7. International Standards of Auditing published by the IFAC;
8. Financial Audit Manual NAO-UK;
9. Ерофеева В. А. Пискунов В.А. Битиукова Т.А.- Аудит. М. Юрайт. 2010;
10. А. Д. Шеремет, В. П. Суйц - Аудит Учебник - М 2005 - (Классический университетский учебник).
