Client business risk and control risk assessments: Evidence from Philippine auditing firms

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Document Type

Article

Source Title

European Journal of Management

Volume

11

Issue

3

First Page

88

Last Page

129

Publication Date

2011

Abstract

A descriptive approach was adopted 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 results of the survey of auditor respondents from the top (5) auditing companies in the Philippines revealed that the “Risk is high” on revenues and expense manipulations. Revenue recognition is an area of “Extremely high risk”, as identified by the SEC and the accounting profession. The item “The client’s senior management usually tends to report the most favorable financial picture” got the highest weighted mean based on the score given by the auditor-respondents.

Auditors tend to become more skeptical and wary with regard to the audit process that they would be implementing if there are indications of possible revenue misstatements, and this should lead towards more extensive and substantive testing of the related account balances such as sales, sales returns and allowances, and accounts receivable. they cannot afford to overlook theses critical points in the audit process because they are most often blamed for failing to detect fraud. Although auditors are not guarantors and should not be responsible for detecting all fraud, the discovery of material misstatement in the financial statements is a major purpose of an audit and auditors are constrained to gather sufficient audit evidence to ensure they detect those misstatements.

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Disciplines

Accounting | Arts Management

Keywords

Risk assessment; Risk management; Loss control

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