THEORETICAL RESEARCH ON RISK INTELLIGENCE IN INTERNAL AND EXTERNAL AUDIT PRACTICE

Abstract

Practical audit standards are applied in combination with Codes of Ethics (related to internal and external auditing), where competence is considered to be one of the basic requirements to an auditor. The theory of competece-based-strategic management defines competence as: the abillity to sustain the coordinated deployment of resources in ways that helis an organization achieve its goals. According to knowledge management theory, internal and external auditor is supposed to: (1) gain knowledge, necessary to become an auditor, (2) practice in order to gain experience, and (3) be able to put his knowledge and experience in practice. The theoretical research has revealed that audit practice is considered to be a set of methods and measures of audit practice. Audit practice includes planning of audit programs, defining audit selection, work control, methods of exploring and assessing information, documentation, analytic procedures, and firm‘s succession assessment.

The article suggests the hypothesis that, presumably, the level of competence directly influences management of audit residual risk level during auditing.

In order to reach the aims of the article, the authors employ risk intelligence theory as the basis of the analysis of professional competence of internal and external auditors. The author of risk intelligence theory D. Apgar (2008) notes that it is crucial to classify risk into controllable and uncontrollable ones. These, in turn, require risk intelligence and are closely related to the competences possessed. The classification of competences is based on competence-based-startegic-management theory. The theory of competece-based-strategic management is an integrative strategy theory that incorporates econimic, organizational and behavioural concerns in a framework that is dynamic, systemic, cognitine and holistic (Sanchez and Hesene, 2004). Theoretical research helped systematize competences that are required for the implementation of audit; determine the technique of internal and external audit; and define criteria for competence assessment and the scale of competence assessment.

The outcomes of the article include formulation of empirical risk intelligence research methodology for the research of professional competence of internal and external auditors. The related research methodology can be employed in prospective studies for “risk intelligence” surveys with the possibility of applying random sampling. In the case of using such methodology for the study of “risk intelligence“ phenomenon, organisation employees related to audit must be included in the survey in order to identify the problems of a particular organisation.