Decision-making models on inviting external auditors for minimization of risks involved in foreign economic activities

Abstract

The objective of the study is to analyze and up-date decision-making models used when inviting an external auditor, for minimization of risks involved in foreign economic activities (FEA). Factors behind the choice of an auditor (an audit company) by a client (a business entity engaged in FEA), to execute the tasks on agreed FEA procedures are highlighted, which are audit reputation (image) and pricing of audit services. Rights and responsibilities of audit companies and auditors, as fixed in appropriate regulatory rules of Ukraine, are outlined. Detailed review ofgeneral characteristics ofrisks and main factors behind the risks specific to FEA are contained. The existence of five main groups of risks specific to FEA is substantiated: (i) risk of a country, arising from political or economic events therein; (ii) bank risk, arising from losses that may result from financial weakness or mismanagement in a bank: (iii) currency risk arising from losses caused by volatility of exchange rates in time of a FEA contract: (iv) risk of an agent, classified in the two types: risk of non-payment, risk of contract failure; (v) risk of financial sanctions enforced by supervisory bodies, arising from inaccuracy or uncertainty of information on FEA. A procedure for decision-making in the condition ofeconomic uncertainty is proposed. The technological chain for decision-making on inviting an external auditor by a business entity engaged in FEA is adjusted.