Concept of project risk audit , Project Management

Define the Concept of Project Risk Audit 

Audit can be defined as an evaluation of a person, organisation, system, process, enterprise, project or product. Quality risk audit is a systematic, independent and documented process of examining an activity of an organisation and this is based on objective evidence. Internal risk auditing helps an organisation achieve its targets by developing an orderly, closely  controlled approach to calculate and improve the effectiveness of risk management, administration, and authorised processes Now let us analyse why we need to perform a Project Risk audit. 

Project risk Audits are performed to monitor if the project is on track and is defect free. It ensures the correct functioning of the processes. These audits should be objective because the project?s wellbeing is at stake. It examines and documents the effectiveness of risk responses in dealing with identified risks and their root causes, as well as the effectiveness of the risk management process. The task of the Project Manager is to certify that the risk audits are performed at a correct frequency, as defined in the risk management plan. The layout for the audit and its objectives should be clearly defined before the audit is conducted. To conduct a Project risk Audit, risk auditors are required. Let us study the role of risk auditors. 

Deciding the risk auditor 

The initial step in project risk audits is to allocate someone to take on the role of project auditor. Ideally, the project manager would be in charge of this. If this person is not objective, or if the stakeholders are relying on this project, an external auditor is hired or approaches an audit organisation. 

Components of audit risk Audit Risk: It refers to the auditor?s readiness to accept that the financial statements which may be materially misstated after the audit is completed and a clear opinion is given. If the auditor decides to lower audit risk, he has to ensure that the financial statements are not materially misstated. 

AR = IR x CR x DR 

Where, IR is inherent risk, CR is control risk and DR, detection risk is the conditional possibility that the auditor does not detect a material misstatement in the project. 

Inherent risk:  It refers to the auditor?s assessment that there may be a material misstatement related to the assertion in the financial statements under audit. The evaluation of inherent risk (and also control risk) is an exercise that requires professional judgement on the part of the auditor. Hence, two auditors evaluating the same organisation may assess the inherent and control risks differently, but it is to be expected that their assessments should be in the same area. 

Control risk: It refers to the risk that the client?s internal control policies and actions fail to distinguish or prevent a material misstatement from occurring, control risk is out of the hands of the auditor; however, its extent can be assessed. 

Detection risk: In this if the detection risk is high then the auditor is willing to accept a high risk detection risk and will do less substantive testing as compared to a situation where the detection risk is lower. It is important that while detection risk can be modified at the auditor's discretion, inherent risk and control risk exist independently in the audit.   

Posted Date: 9/25/2012 9:05:29 AM | Location : United States







Related Discussions:- Concept of project risk audit , Assignment Help, Ask Question on Concept of project risk audit , Get Answer, Expert's Help, Concept of project risk audit Discussions

Write discussion on Concept of project risk audit
Your posts are moderated
Related Questions
Problem 1: (a) What do you meant by Life Cycle Costing? (b) Explain briefly the methodology for Life Cycle Costing. (c) Why might a procurement officer consider procuri

The product development cycle starts with the assessment of the customers needs and ends when the design is finally released for bulk production. The main steps in th

using the operating cycle and any other financial management knowledge,discuss the applicabilty of such cycle to poultry

1. Explain the concept involved in operations strategy and the emerging trends in the area of Operations Management. 2. Draw the network. Find critical path and project duration

Problem 1: Describe the seven Baldrige criteria 1. Leadership 2. Strategic planning 3. Customer and market focus 4. Measurement, analysis and knowledge management 5. Human r

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Question 1: Choosing a social project of your choice, use the SWOT analysis and Force Field Analysis Techniques to scope the project explaining what are feasible and what are n

What types of errors disclosed in Trial Balance? A Trial Balance discloses the given types of errors as illustrated follows: a. An item posted two times. b. A mistake int

What do you mean by psychological tests? Psychological Tests: These Tests are conducted along with a view to ascertaining the mental suitability of the candidate for perf

The Arena model has been designed to simulate the workflow of the emergency room as accurately as possible. It has one top-level model and two sub-models. Create Models In