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Section 5. Economics, organization and management of enterprises, branches, complexes
Xajimuratov Nizomjon Shukurullayevich,
senior teacher, The Faculty of Accounting and audit Tashkent state economic university, E-mail: x. n.sh@mail.ru
THE DIRECTION OF REDUCING AUDIT RISK IN THE FINANCIAL STATESMENT AUDITING
Abstract: In this article, the essence of audit risk is investigated. And also proposed ways to reduce audit risk.
Keywords: audit risk, materiality, audit evidence, financial statements.
Modernization of the national economy is one of the basic requirements of the present: the further expansion of various enterprises, the successful development of business and the provision of new jobs. This, in turn, is one of the topical issues in the further development of joint-stock companies.
The rapid and effective use of reliable and complete information to ensure the effectiveness of joint stock companies is crucial for making important economic decisions. This, in turn, requires that the information presented in the financial statements be clear and understandable in terms of its economic nature and its role in business, the methods of evaluation and consistency ofother reporting data. The quality ofaudit reports and conclusions plays an important role in validating financial reporting. It is important to correctly assess the risk ofthe auditor in the preparation ofa reliable and impartial audit report on the audit offinancial statements. Complexity and complexity of business processes require a deeper understanding of the auditor's work and reduces the risk of the auditor.
As you know, there are two types of audit risk -the risk of entrepreneurship and audit.
Entrepreneurial risk -is the risk that the auditor may be subject to termination of a license even in accordance with the terms of the audit. Entrepreneurial risk depends on the competitiveness of the audit firm, the prestige of the auditor, the likelihood of possible litigation in relation to the audit organization, as well as the timing and timing of the audit.
Audit risk -is the risk that the audit of the financial statement will not be reliable. Some scientists argue that the risk of the auditor arises because the risks are not directly defined or that they can not properly assess the role of internal audit in corporate governance [1].
The auditor should use his professional judgment to assess the auditor's risk and develop audit procedures that reduce the risk to a satisfactory level.
Audit risk is not always able to identify all serious errors associated with objective reasons for unavoidable audit restrictions (see Figure 1).
Restrictions on auditing activities
Figure 1. Restrictions
These limitations are unavoidable and can be inherent in the audit test, which can affect the auditor's ability to identify serious errors in the report, so it is inappropriate to classify the risk to zero.
First, the choice of methods and tests during the audit can not guarantee that the integrity of the accounting systems and internal control of the customer is not exhaustive. In addition, a significant part of the auditor's testimony is only a confirmation of a concrete conclusion and does not have an ideal character, and so on.
Secondly, the uncertainty surrounding the environment in which the client works (especially those that are related to the environment). This abundance and its exclusion are based on the following grounds: Restriction of the
Auditor to receive complete and reliable information about the subject and the environment in which he conducts the audit; Limited ability of the auditor to receive and process the information received; Inconsistency of emergence of extraordinary events in the course of entrepreneurial activity of the inspected person; market conditions on which the subject of the audit is exposed; contradictions in relations with customers in work; the complexity of the processes under study, and so on.
Thirdly, the assessment of the risk of audit risk depends on the professional qualifications and competence of the auditor conducting the assessment,
on auditing activities
and on the basis of his professional judgment. The reasons for this show that all auditors have different qualifications and competence in terms of their level of knowledge and skills, skills and experience, as well as the auditor's risk.
Thus, the risk of the inevitability of an audit is an inevitable event, and the likelihood of its occurrence is counterproductive for the level of confidence of the auditor. However, even if the audit firm takes into account all the above limitations and their consequences, in no event can 100% of all material errors in the client's accounting report be guaranteed.
American economists A. Arens, R. Elder and M. Bizli divided the auditor's risk into three types:
- unacceptable risk;
- control risk and risk of uncertainty [2].
The auditor's risk consists of two key elements:
- risk of serious mistakes;
- Identification risk.
World practice shows that the potential risk of joint auditor risk should not exceed 5%.
An alternative rule in professional terms is the following: the level of confidence or confidence interval should not be less than 95% (one hundred of the conclusions made by the auditor are incorrect on disputable issues). This is the "magic number of audit risks" [3].
Let's take a closer look at those who risk the risk of the auditor.
The risk of material misstatement reflects the potential risk of errors in the financial statements that are specified in the priorities of the outgoing audit.
The risk of material misstatement is related to the risks inherent in the judgment of the auditor, regardless of the financial reporting process. The analysis of the risk of material misstatement is at the level of the financial statements (often such risks are exhaustive and have a significant impact on the sources of financial reporting), and types of economic transactions, valuation and disclosure are carried out at the level of financial reporting sources.
The risk of material misstatement reflects the overall risk of uncontrolled risk and risk control.
A non-intrusive range of risk transactions can be susceptible to individual or other errors when
there is no need for internal controls that can minimize such risks by reflecting errors in the balance of the balance or balance sheets.
To understand the concept of basic risk, we assume that there is no control over material or other officials responsible for doing business. This is impossible in a particular company. For example, the chief accountant trusts the cashier and does not control his business; Inventory warehouse is located far from the parent, and therefore the enterprise warehouse is not invoiced. The probability of accidental or erroneous cases in these cases depends on the proper and fair performance of tasks assigned directly by trusted employees.
It is influenced by the following risk factors (Figure 2).
the economic situation in the industry
foreign markets for raw materials
o foreign markets for sale of products
credit resources
used forms of calculations
probability of bankruptcy
division of responsibilities among employees
Figure 2. Factors Affecting Undeniable Risk
the presence of non-standard-notypical operations
It should be noted that the probability of occurrence of risks is directly related to the employees, directly involved in the performance of certain functions. True, it is possible to rely on the employees at a certain level, but the extent to which the auditor makes an independent decision on the basis of his professional judgment during the audit.
As a result of the Company's operations, there are commercial and other risks arising from its operation and the specific network-specific features, normative-
legal basis, dimensions and complexity of this business. The risk of material misstatement depends on the nature of the residuals in the accounting records or the types of business transactions. The risk factors that the auditor should pay more attention may include:
• Complex calculations that can be avoided;
• high-value inventory;
• Assessment values that are somewhat obscure;
• insufficient capital turnover for future business activities;
• Significant dwindling or sharp fluctuations of business activity in the network, accompanied by a large number of bankruptcy cases;
• Changes in technology that can lead to the appearance of certain types of products.
The type of risk that can not be subdivided is defined as the type of risk (in some cases, control risk).
Misdemeanor is an action taken by unlawful actions (inaction) for the purpose of illegal exploitation of one or more persons, or third parties, among employees, owners, managers of the subject of the audit.
There are two types of deliberate errors that arise as a result of violent actions that are considered in the audit process:
• errors occurring in the process of the financial statement misstatement;
• errors resulting from the misappropriation of assets.
Control risk is also an important element ofauditor risk. Risk ofcontrol is serious errors that have not been solved by the subject's internal control system [4].
In other words, control risk is a risk that the errors that may be material or combined with other errors can not be corrected or detected by the company's internal control system in a timely manner. The risk of control is influenced by the following factors (Figure 3).
Presence of client (customers) accountability Accounting methods Availability of internal audit services
Methods of management Presence of boards controling Transfer operations permit system
The level of staffing is at the executive level Qualification of the managers of the companies Obliged to report to the Supervisory Board or to the Supervisory Board
Figure 3. Factors affecting the risk of control
The internal audit system is a limiting factor that does not allow financial reporting failures. The auditors pay particular attention to the control risk assessment process, and the control system is often referred to as testing the testing system. During the test (typically conducted in the form of questionnaires, questionnaires, observations, etc.) the auditor evaluates the system's ability to respond to, detect, correct, and correct serious errors.
Control risk includes evaluating the internal control of an organization. In this regard economist scientists K. Jonstoun, A. Gremlin and L. Rittenberg describe risk assessment as risk assessment and evaluation process [5].
Companies need to identify and evaluate commercial and other risks as well as develop and introduce a system of internal controls. Elements of enter-
prise-level controllers, such as the board of directors' controls, the common information controls, and the personnel policy principles, are applied to all sources of financial reporting, but are usually referred to as business entities, usually as a means of control.
There is always a risk of certain control due to restrictions on the accounting and internal control system.
When assessing the internal control system, the auditor should evaluate the risk of controlling the risks of material misstatement at the financial reporting level.
The risk of being identified is the likelihood of an auditor who is subjectively audited by an auditor, and that the auditor's testimony is not likely to allow errors and omissions, which are inherently present in the financial statements, in particular or in the aggregate. [6]
For a number of auditor risk, the risk that the risk of undisclosed is uncertain as to the risk of material misstatement at the level of financial reporting. The auditor identifies potential sources of material misstatements and directs audit procedures to those areas. In developing and evaluating the results of the process, the auditor should take into account the following possibilities:
• the possibility of choosing an incorrect auditor;
• The possibility of misuse of the proper audit procedure or misinterpretation of the audit procedures results.
The extent to which the risk of uncertainty at the level of the auditor's risk is determined by the fact that the risk of material misstatement is at the level of the financial reporting source. Thus:
• The higher the risk of serious errors, the less risk may be identified;
• The lower the risk of serious errors, the higher the risk of uncertainty may be.
The auditor performs audit procedures to assess the risks of material misstatement and searches for ways to limit the risk of non-recognition by selecting detailed audit procedures based on such assessments.
According to economists, it is desirable to pay special attention to the risk of auditing when determining the level of significance [7]. In order to reduce unidentified and unaddressed errors in the financial report, a lower level of value is set. The procedure for determining the lower the level of materiality does not consist of simple calculations. The auditor should use his/her professional judgment and consider the following:
• an understanding of the auditor's opinion about the activities of the subject under which the audits
are conducted, taking into account new facts identified during the course of risk assessment procedures;
• The amount and characteristics of the errors identified during the previous audits.
Consequently, the auditor should only consider that the overall level of significance should not be reduced based on the high level of auditor risk.
In our opinion, to reduce the risk of an auditor, the following audit procedures should be performed:
1. An auditor shall be required to carry out inventory checks during the audit. Inventory must be conducted by the auditor and must be personally involved. If the inventory is poorly conducted, the risk of the auditor's judgment increases;
2. The personnel structure of the audited entity should be thoroughly acquainted with: age, education, availability of family relations, staffing. Studying the composition of the staff helps to identify frauds;
3. A balance sheet made by the organization with an alternative balance sheet should be compared. If there is a large difference in the result of the comparison, the risk of auditing increases. By doing so, more attention should be paid to the "hot spots" of the organization;
4. Special attention should be paid to reducing the risk of non-recognition by an auditor. The risk of uncertainty and direct control is directly linked to the auditor's risk of being identified. For this purpose, the auditor should be able to increase the number of auditor's activities, extend the scope of the selection, attract qualified and experienced auditors.
The aforementioned recommendations will significantly reduce auditor risk during audits and provide reliable information for external users.
References:
1. Theofanis Karagiorgos, George Drogalas, Iordanis Eleftheriadis, Petros Christodoulou. Internal audit contribution to efficient risk management. Journal of business management, - Vol. 2. - No. 1. - January-June - 2010.
2. Alvin A. Arens, Randal J. Elder, Mark S. Beasley. Auditing and assurance services: an integrated approach. - 14th ed. p. cm. Includes index. ISBN-13: 978-0-13-257595-9. ISBN-10: 0-13-257595-7.
Copyright © 2012, 2010, 2008, 2006, 2005 by Pearson Education, Inc., Upper Saddle River, NewJersey, 07458. 3.261
3. Bichkova S. M. Evidence in auditing. - M. Finance and statistics, - 1998.
4. Eze Gbalam Peter. Audit Risk Assessment and Detection ofMisstatements in Annual Reports: Empirical Evidence. Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) - Vol. 4. - No. 1. - 2013.
5. Karla M. Johnstone, Audrey A. Gramling, Larry E. Rittenberg. Auditing: A Risk-Based Approach to Conducting a Quality Audit, Ninth Edition. ISBN-13: 978-1-133-93915-3. Copyright - 2013. Southwestern, 5191 Natorp Boulevard, Mason, OH 45040, USA. - 99 p.
6. National standard of auditing of Republic of Uzbekistan № 9 "Materiality and audit risk".
7. Julia Baldauf, Rudolf Steckel, Marcel Steller. The Influence ofAudit Risk and Materiality Guidelines on Auditor's Planning Materiality Assessment. Accounting and Finance Research. - Vol. 4. - No. 4. - 2015. URL: http://www.sciedupress.com/afr
