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Ac 340 - Auditing

Autor:   •  February 28, 2018  •  1,051 Words (5 Pages)  •  121 Views

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In addition, power(2004) also points out the possibility of new risk management as a managerial fashion(irrtional explanation). Organisations have always viewed risk as a key factor in running their businesses. Therefore, it’s existence is nothing new but can be new ways of doing the same old things. Following the demise of many large companies and corporate scandals, risk management is starting to receive increased attention towards its role, thus, selling the existing structure of risk management as a new approach to risk.

Furthermore, the demand for audible set of practices also serves as a rational explanation in rising risk management practices. Reporting on the effectiveness of internal controls and risk management systems require making things audible (Power, 2004). The audit view of the world increasingly relies on preparing huge number of documents as an evidence to a company’s transparency. All systems are designed and operated ‘in the shadow of audit’ which has to some extent created an illusion of control and provided comfort that a system is in place and that someone is in charge, even when things may really not be under control.

Nevertheless the rise of risk management has also motivated politicians to construct blame-avoidance strategies where the primary aim is to avoid blame for unpopular actions rather than by seeking to claim credit for popular ones causing negativity bias. The idea is to hide behind blunt professional statements and engage in defensive risk management. According to Hunt’s blame-game model, a typical blame avoidance strategy is delegation where in an uncertain outcome, the delegators choose to dispose off the responsibility in order to secure their own position. Based on different credit and blame situations, delegators are happy to trade off credit if there is also some blame associated with it. However, what they fail to perceive is public attitudes and beliefs, which can potentially reverse the blame game and produce different outcomes than intended (hunt, 2002). For instance, the public may still blame the government regardless of its delegation strategy.

Therefore, in cases where the blame game cannot be played anymore, delegates try to resolve the problem turning to alternative defensive risk management- developing strategies in a way that blame disappears (hunt).Those strategies include rebuttal (problem denial), prebuttal, delayed response, reorientation (by patterns of organization designed to dissolve blame), protocolization, data fabrication and service abandonment. Such strategies can be expected to figure large in the ‘defensive risk management’ behaviour of blame-shiftees to whom formal responsi- bility for safety and hazard has been delegated, especially if the scope for blame sharing or blame shifting is limited. Defensive risk management may even involve attempts to ‘change the facts’ by massaging or fabricating reporting data to create the impression of safety. This is also mentioned by power, where he explains that in financial auditing, there is evidence that firms alter their profiles by including only low risk clients and shedding off high risk clients - adverse selection.

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