Project Report on "Audit Procedures and Risk Assessment: Evaluating the Effectiveness of Internal Control Systems"

Abstract

This project report examines the relationship between audit procedures, risk assessment, and internal control systems in Bangladesh’s financial sector, based on a systematic review of secondary data from academic literature, international standards, and regulatory reports. Guided by frameworks such as the COSO Internal Control Framework and International Standards on Auditing (ISA 315 and ISA 330), the study explores how audit procedures identify and mitigate risks, the role of internal controls in ensuring financial integrity, and the challenges of implementing global standards in Bangladesh. Key findings reveal that effective internal controls, comprising control environment, risk assessment, control activities, information and communication, and monitoring, are critical for preventing fraud and ensuring compliance. However, high-profile financial scandals, such as the 2016 Bangladesh Bank cyber heist (US$101 million theft due to weak IT controls), BASIC Bank’s BDT 4,500 crore irregular loans, and the Hallmark Group’s BDT 3,500 crore fraud, expose systemic weaknesses in internal controls, inadequate risk-based auditing, and cultural barriers like centralized decision-making in family-run businesses, which dominate 70% of listed companies (Soiloor, 2022; Transparency International Bangladesh, 2020). The study highlights significant gaps in technology adoption, with only 15% of Bangladeshi audit firms using advanced tools like ACL or CaseWare IDEA by 2024, and 60% of banks lacking Security Operation Centers, increasing cybersecurity risks (ICAB, 2021; BIBM, 2023). These challenges are compounded by limited auditor independence and inconsistent regulatory enforcement by bodies like the Institute of Chartered Accountants of Bangladesh (ICAB) and the Financial Reporting Council (FRC). Recommendations include prioritizing mandatory training on ISA standards and cybersecurity, enforcing independent audit committees to address cultural resistance, promoting technology adoption through Digital Bangladesh incentives, revising the 2023 Cybersecurity Act for clarity, and implementing affordable control solutions for SMEs. These measures address the research questions by proposing solutions to enhance audit effectiveness, mitigate financial and operational risks, and overcome technological and cultural barriers in Bangladesh. By adopting these recommendations, Bangladesh can strengthen its audit and control environment, fostering transparency, accountability, and stakeholder confidence in its financial sector.