Risk Evaluation and Cumulation in Internal Audit

Author:PhD Student Adrian VINTILESCU BELCIUG, PhD Student Laura – Cornelia BROJBA, PhD Student Lăcrămioara BĂLAN (Corches), PhD Student Daniela CREŢU (Coloiu)

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Keywords:Internal public audit, Audit risk, Monte Carlo simulation, Portfolio Theory

Abstract:
Like many other types of audit, the internal public audit is a functional independent and objective activity based on risk management. The risk can be seen like any other event, action, situation or attitude which might negatively affect the public institution’s capacity of fulfilling its objectives. At a certain moment, the public entity is under the pressure of several risks. Therefore, in the same moment in time, many risks act conjugated. It was noticed that the events with a high impact are produced by the joint influence of many small risks. This paper is studying the risks’ joint action. The analysis can be used furthermore for increasing the efficiency of the public intern audit missions, allowing auditors to focus on the significant risks.\r\nThis paper compares the method of risks’ analysis from the Law nr.672/2002 regarding the public intern audit and used in the Audit Mission Guide for the Human Resources Activity, with another method of analysis for a risk portfolio, using the Portfolio Theory. The theoretical analysis was followed by a Monte Carlo simulation using the Crystall Ball product. Following the simulation, we have compared the model from the Law 672/2002 and the stochastic modeling, and we found a risk audit analysis much more profound.\r\n

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