CONDITIONS FOR ENSURING A CONTROLLED IMPACT TO FORM AN ADAPTIVE APPROACH TO THE PROCESS OF RESPONDING TO FRAUD RISKS DURING QUALITY CONTROL INSPECTIONS OF AUDIT SERVICES

Abstract

Introduction. The increasing threat of fraud, particularly related to financial statement manipulation, is a significant concern during economic and political crises. Despite audits being a crucial method for fraud detection and prevention, auditors rarely identify fraudulent activities. Consequently, there is a growing concern among financial statement users regarding the auditors' responsibilities in detecting fraud. Enhancing the methodology of public oversight to ensure compliance with international auditing standards related to fraud and revising the auditors' responsibility doctrine is essential for improving confidence in financial reporting quality. Purpose. This study aims to identify and substantiate methodological approaches to verifying compliance with International Standard on Auditing (ISA) 240 during external quality control of audit services. The objectives include defining the purpose of quality control inspections related to auditors' fraud responsibilities, identifying factors influencing the likelihood of detecting deficiencies, and suggesting improvements to the regulatory framework for quality control inspections. Methods. The research combines various scientific methods, including analysis of existing literature and legislation, examination of inspection reports, and surveys of quality control inspectors. The study focuses on audits conducted in 2023, particularly under the conditions of martial law, to assess the impact of new fraud risks on audit quality. Results. The analysis of completed quality control inspections revealed that 72.6% of the audit engagements had significant deficiencies in applying ISA 240. The study established a direct correlation between the use of technological resources for audit documentation and the likelihood of detecting deficiencies. Audits that utilized audit data analytics software for analyzing journal entries had a lower probability of significant deficiencies. Furthermore, the study highlighted the variability in the time spent on statutory audits of large entities, suggesting that shorter audit times might indicate missed audit procedures and higher risks of deficiencies. Conclusion. The findings underscore the need for integrating advanced technological tools, such as artificial intelligence, for data analysis and fraud detection in financial statements. The research also suggests that improving the inspectors' training on fraud-related issues and adapting the risk-oriented approach in quality control inspections can significantly enhance the overall effectiveness of these inspections. These measures will contribute to reducing the expectations gap between the public and auditors regarding fraud detection responsibilities, ultimately strengthening economic security and investor confidence.