Client business risk and control risk assessments: evidence from Philippine auditing firms.

AuthorFerrer, Rodiel C.
  1. INTRODUCTION

    To a lay person, risk often evokes negative undertones, it borders on winning it or losing everything that you have wagered on. In business, risk is a day to day occurrence. Almost every transaction involves risk. From the simple putting up of business, competing with other business and the eventual fold-up, risk is one of the major considerations. Business risk emboldens an entity to move forward and a determinant as well to the viability of their endeavors. Encapsulated within that is the setting up of appropriate Control Risk. Though both go hand in hand yet a lot of people tend to consider the business side and neglecting the control side of risk.

    Management must continually asses business risk and develop clearly defined objectives. Risk assessment is the process of assessing inherits risk associated with achieving business goals. The effective management of business risk can help increase the profitability of an organization. Internal auditing can also have a positive impact as it assists in preventing and detecting invalid transactions and statements. Internal audit also reviews compliance with accepted policies, procedures and practices to ensure that basic internal controls are present. (Certified Financial Services Auditing Study Guide, 2005)

    This study aims to provide an auditors' perception on both Business Risk and Control Risk from the accounting of transactions, the handling of assets and usual transactions and duties and responsibilities of key players in the entity, missing documents, poor hiring procedures, unreasonable constraint on the audit process, attempts to limit the scope of the audit, general Computer Information Systems (CIS) controls, the audit process usually changes in the client's draft financial statements and the client usually investigates the background of new employees whose work is related to financial matters.

  2. RESEARCH METHODOLOGY

    A descriptive approach was adopted in this study. The descriptive aspect focused on the level of perceptions on audit risk of the respondent auditors of different publicly listed corporations in the Philippines

    Primary data on perceptions of audit risks were obtained from a survey of auditors of the top five (5) auditing firms in the Philippines, namely: Sycip Gorres Velayo & Co. (SGV & Co.), Isla Lipana & Co., Punongbayan & Araullo, Laya Mananghaya & Co. and Manabat Delgado Amper & Co.

    The questionnaire on risk assessment in conducting an audit is patterned after the research by Hsueh-Ju et. al. (2006) while the questionnaire on client risk factors was motivated by the research of Racasa (2003).

    The level of perceptions on audit risk of the respondent auditors of different publicly listed corporations in the Philippines was measured using weighted mean of their responses on Likert-scaled questionnaire items.

    Weighted Mean = [summation]fx/[summation]f

    where:

    [summation]fx--Sum of all the products...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT