УДК:657.6
Chumak Oksana Volodymyrivna
Kharkiv institute of finance UDUFMT
Kharkiv city
Melnychuk Iryna Ivanivna
Khmelnytskyi cooperative trade-economic institute
Khmelnytskyi city
INSURANCE COMPANY AUDIT RISKS: MINIMIZATION
EVALUATION AND MANAGEMENT
The questions in auditing insurance companies, defined types of risks that
arise in this case, as well as the methods of risk assessment and management in
order to minimize them.
Key words: audit risk, risk assessment, insurance and risk management.
Introduction. The issue of auditing insurance companies and risks
associated with its holding paid much attention to the works of foreign and
domestic scholars as A. Alekrynskyy, TA Arkhangelsk, AN Ahmetbekov, MT
Belukha, O. Hamankova, T. Harmatiy, OD Zaruba, TA Dubrovin, EF Dyuzhykov,
TA Kalinska, SS Osadets, VS Prikhodko, VI Plis, V. Suyts, VA Sukhov, VI
Ryabikin, J. Hampton, V. Furman, AD Sheremet et al [10]. However, the audit
itself is a specific type of economic activity that develops only on the territory of
our country. This is true of insurance companies, which have only recently begun
to develop its activities in Ukraine. Therefore, the problem of risks arising from the
audit of insurance companies and may adversely affect the audit findings are quite
relevant. Due to the inability to completely avoid these risks, especially urgent
issue to minimize them in the present.
The article aims at summarizing kinds of risks that arise during the audit,
determining the best methods for their assessment and management in order to
minimize the impact on the results of the audit by the insurance company.
The results of research. Activities in the field of insurance is a specific type
of business, which has its own branch features in the conduct of business, and in
record keeping. To date, the insurance in Ukraine extends to almost all areas of
life, and users of financial statements of insurance companies are interested in the
reliability of the data that it reflected.
The need for an audit provides insurers Law "On Insurance" in Article 34
which states that the accuracy and completeness of the annual balance sheet and
statements of insurers must be confirmed by the auditor (audit firm) [3].
Auditing in an insurance company subject to certain risks that jeopardize not
only the individual activities of the insurer, but also the work of other contractors
who are interested in the reality of the audit findings.
According to ISA audit risk - the risk that the auditor expresses
inappropriate audit opinion if the financial statements are materially misstated. [5]
Today among scholars no clear idea about the types of risks that are inherent
in auditing.
Thus, foreign and domestic authors share the risks of auditing into two
types: audit risk, which provides an opportunity to express the auditor
inappropriate audit opinion when the financial statements are materially misstated
and the risk of business auditor (audit firm), the essence of which is the ability
zaznavannya losses on realization audit activity, regardless of the quality of their
professional duties. This classification risk audit, according Pylypenko LM, is
flawed, it does not cover the entire set of risks. In particular, he notes that auditing
provides, in addition to conducting audits of other related audit services. No
unequivocal assurance that the results of such services reflect the real state of the
client. This leads to the risk to the auditor. This risk is inherently similar to an
audit, but it is not, since the latter by definition occurs only during an audit. To
address this shortcoming Pilipenko LM proposed risk auditing divided into two
groups: professional risks auditor directly related to the performance of the
auditor's professional responsibilities and business risks auditor (audit firm). To
occupational hazards auditor, according to the author, are: audit risk, risk review,
risk consulting, account risk and expert risk. The structure of the risk review
released inherent risk, control risk and detection risk, and risk advisory structure informative risk and the risk of insolvency auditor [8].
Business Risk Auditor (auditing firm) include risk business relationships
with clients, reputational risk, the risk of making wrong decisions of the managers
of the audit firm, the risk of insolvency of the client, the risk of loss of
independence, the risk of unfair competition, the risk of instability legislation on
auditing and risk relationship conflicts with public authorities [8].
Onishchenko, OA believes that the audit risk has three constituent elements:
inherent risk, risk associated with inadequate internal control and risk detection
errors and distortions [7].
However, any type of risk affects the results of the audit. But to completely
avoid risk while conducting inspections impossible (due to the specific audit).
Before starting an audit by the insurance company the main task of the auditor is to
evaluate each risk to themselves and their minimization.
Question methods of risk assessment found no unambiguous interpretation
in the literature.
Thus, according to ACI are two basic methods for assessing audit risk:
intuitive and settlement. An intuitive method is that auditors based on their own
experience and knowledge of the client, determine risk based on reporting in
general or specific groups of operations and use this assessment to plan the audit.
Intuitive risk assessment is also carried out according to verbal questioning
(testing) administration professionals and accounting personnel economic entity.
Calculation method involves the assessment of audit risk through
preparation and decision of the special factor model relative values [5].
Pilipenko LM risk assessment audit classified by time aspect and identified
previous, current and final assessment of occupational risk and the auditor planned,
ongoing reporting and risk assessment of business auditor (audit firm). The value
of risk assessments can be expressed as in numerical form, and in verbal (meaning
"very low", "low", "medium", "high" and "very high"). Also, the author to
determine the level of risk proposed to use the method of fuzzy logic, which has its
advantages: you can operate verbal assessments, the auditors consider uncertainty
in estimates of factors influencing the risk is flexible and adaptable, etc. [8].
In modern scientific literature methods of risk assessment are combined in
four groups:
• 1) expert - allow you to determine the level of risk if the information is
available for making payments or comparison (based on a survey of qualified
specialists in the subsequent processing of results);
• 2) economic-statistics - used only if sufficiently large amount of statistical
information for a large number of variables level of risk;
• 3) calculation and analysis - designed to calculate a relatively accurate
quantitative expression level of risk based on internal knowledge base of the
enterprise;
• 4) Analog - allow to assess the level of risk on individual transactions
based on comparison to similar [1].
As auditors Ukraine still do not have enough experience with assessment of
audit risk, now used in domestic practice foreign model offered by AICPA
(American Institute of Certified Public Accountants), and describes it in the
following form:
GAR = IR ∙ CR ∙ DR,
GAR - total (acceptable) audit risk;
IR - inherent risk (internal business);
CR - risk control;
DR - Risk detection [5].
Onishchenko, OA believes that the above three-part definition of audit risk
model has some drawbacks for use in Ukrainian practice audit: firstly, assessment
of acceptable audit risk, inherent risk and control risk is largely subjective, and
secondly, The model is a model of planning, so when evaluating the results of
audit its use is not always possible [7].
In domestic practice auditing insurance companies should pay more
attention to the assessment of audit risk, especially given the national legislation of
this type of business and economic activities of government ministries and
agencies, tax, accounting and audit practice more. Therefore, the calculation model
of audit risk offered by foreign authors, it is advisable to base the draft national
model. A national model project in the practical point of view is more reasonable
to transform risk control, dividing it into the risks of internal and external control.
This division can be considered quite reasonable because domestic practice
auditors often use information external to the subject of the check control - tax,
control and auditing and other services and assets. We thought the author
completely agree, because the level of auditing in Ukrainian companies and
enterprises still can not meet the requirements of world standards.
Selection methods of risk assessment carried out by the auditor, depending
on the circumstances and conditions of the audit, however, the most common and
versatile method is the method of expert estimations, statistical and analytical
methods [9].
To assess any risk audit is important to consider all factors that affect the
quality of the inspection. They in turn are divided into internal and external factors
influence. The external include: qualifications and practical experience of external
controllers, changes in laws and regulations governing the activities of insurers;
objectivity in evaluating test objects and actions of managers and other employees;
checklist procedures used in external control others. The internal include:
competence control personnel, organization of accounting and internal controls;
correctly reflect transactions in accounting, personnel administration policies of
insurance companies and retraining workers, the organizational structure and the
presence of the internal audit function and its like. Well-established system of
internal control significantly reduces audit risk when conducting both external and
internal audit. If the inspection of the internal control auditor determines its
effectiveness, it can sufficiently trusted information and, therefore, reduce the
amount of their own work.
Risk assessment audit to implement their mitigation or elimination involves
the following procedure:
1. Choice of methods for detection and identification of risks.
2. Collect necessary information and its processing.
3. Identification of the auditing
3.1) determine the merits and risks of their classification;
3.2) research quality parameters of risk, namely the definition:
- Sources of risk;
- Factors influencing the level of risk;
- Structure of the components of individual risks;
- Signs of manifestation risks etc..
4. Determining the effects of recognizing risk events.
5. Risk assessment audit
5.1) choice of character assessment, which may be common (high, medium,
low) or quantitative (in the coefficients, percentage, absolute values);
5.2) the construction of risk models (defining relationship of its components
with regard to their structure);
5.3) the choice of methods and techniques for risk assessment;
5.4) or verbal quantitative (total) risk assessment on the results of the
application of selected methods.
6. Determination of areas to reduce the risks of auditing, development
activities to minimize or avoid [4,6]
Also, for the erection of audit risk to an acceptable level by management
Pilipenko LM suggested using the following methods:
- auditors - method of obtaining additional information, which provides
further evidence through additional procedures or increase sample size and method
of prevention of risk, which is realized by joining professional associations;
- management audit firm - methods of prevention of risk, which in this case
involve preventive activities associated with recruiting firms, raising their
qualifications, quality control work, and seeking and receiving clients in
developing a system of constant communication with customers and previous
assessment of their ability to pay, conduct systematic monitoring information on
the auditor, diversification of income delegation of representatives to the Audit
Chamber of Ukraine, etc.; methods of insurance and self-funded by the conclusion
of appropriate agreements with other insurance companies and creating their own
reserve funds;
- state - methods of prevention, based on the auditor's certification,
maintaining registers of audit activities, developing and approving standards on
auditing, quality control, audit, approval requirements for founders and capital
structure of audit firms.
The proposed method of identification and risk assessment audit will help
improve the efficiency of their management in order to reduce to an acceptable
level [8].
Conclusions. Thus, due to the impossibility of avoiding risk audit, the
auditor (audit firm) should clearly plan its work in verifying insurance company,
pay attention to the features of the data entities to evaluate the internal control of
the insurer and timely decision on the level of incurred risk. The quality of this
work depends largely on the professionalism, experience and objectivity specialist
audit firms.
In turn, the effectiveness of internal control depends primarily on the
training of control staff, as well as the organization of the system of accounting and
control in the organization.
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