Risk-based auditing in the new millennium : a Maltese viewpoint

Abstract

This study focuses on risk-based auditing in Malta - an approach that is increasingly replacing system-based auditing. A qualitative analysis, of ten 'elite interviews' with the Big Five audit firms and other five randomly selected audit firms is carried out. The study treats: • the state of risk-based auditing in the selected Maltese audit firms, and • how these firms have chanQed their working methods in response to this approach. Findings show that this approach is mostly applied whilst auditing large clients and more likely to be always utilised by most of the Big Five audit firms. Full substantive testing without an assessment of the client's risks is still prevalent whilst auditing small clients. Most audit firms have introduced the approach during the late 80's and early 90's and both partial and a full risk-based approach are undertaken. The Big Five audit firms have mostly adopted the full approach. In the execution of an audit, the external auditors prefer to rely on their past experiences but they also seek assistance of their client's key personnel, which is perceived as essential in certain situations. Risk-based auditing is considered as a beneficial tool that increases the judgemental skills of the workers. However, it also has its costs, particularly whilst adopting the approach. The study recommends the introduction of information technology within risk-based auditing, training of staff and more emphasis on the auditor's independence.