A Model to Reduce Internal Auditing Risk in SMEs

The financial statement may not contain correct or truthful information and, as a consequence, stakeholders’ interests may be damaged. To avoid such risk, legislators have established certain obligations concerning the auditing of disclosures. The paper has a double objective. Firstly, the audit risk approach used by the auditors within a specific small and medium enterprise (SME) is analysed. Secondly, a theoretical model of the limitations of typical risks involved in the SME auditing process is created. According to the audit risk approach, audit risk can be seen as the union of different risk categories, which can be more or less directly influenced by the conduct of the auditor. Such risk components influence each other. Every risk component can be more or less influenced by the small size of a SME. A model for the reduction of audit risk in an SME depends on the typical factors of an SME and the attentive and efficient planning of the audit activity.