Cost Model for Risk Assessment of Company Operation in Audit

  • S. V. Selishchev National Academy of Statistics, Accounting and Auditing
Keywords: assumption on continuity, cost, audit, audit risk, methods

Abstract

This article explores the approach to assessing the risk of company activities termination by building a cost model. This model gives auditors information on managers' understanding of factors influencing change in the value of assets and liabilities, and the methods to identify it in more effective and reliable ways. Based on this information, the auditor can assess the adequacy of use of the assumption on continuity of company operation by management personnel when preparing financial statements.

Financial uncertainty entails real manifestations of factors creating risks of the occurrence of costs, revenue losses due their manifestations, which in the long run can be a reason for termination of company operation, and, therefore, need to be foreseen in the auditor's assessment of the adequacy of use of the continuity assumption when preparing financial statements by company management.

The purpose of the study is to explore and develop a methodology for use of cost models to assess the risk of termination of company operation in audit.

The issue of methodology for assessing the audit risk through analyzing methods for company valuation has not been dealt with. The review of methodologies for assessing the risks of termination of company operation in course of audit gives grounds for the conclusion that use of cost models can be an effective methodology for identification and assessment of such risks.

The  analysis  of the  above  methods gives  understanding  of the  existing  system for company valuation,  integrated into  the management system,  and the consequences of its use, i. e. comparison of the asset price data with the accounting data and the market value of the asset data. Overvalued or undervalued company assets may be a sign of future sale or liquidation of a company,  which may signal on high probability of termination of company operation. A wrong choice or application ofvaluation methods can be indicative of the risk of non-reliable and non-relevant information received by users of financial statements. The study of methods for assessing the company value lays the basis for developing a methodological guideline of the procedural support for audit of administrative decision making on valuation and revaluation of assets.

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Abstract views: 153
PDF Downloads: 122
Published
2017-12-20
How to Cite
Selishchev, S. V. (2017). Cost Model for Risk Assessment of Company Operation in Audit. Scientific Bulletin of the National Academy of Statistics, Accounting and Audit, (4), 59-63. https://doi.org/10.31767/nasoa.4.2017.07