A multi-objective optimization approach for integrated risk-based internal audit planning.

Area of Science:

• Business and Management
• Decision Science
• Accounting and Auditing

Background:

• Annual audit planning is a complex, multi-criteria decision-making challenge for internal audit departments.
• Existing methods often focus solely on risk minimization, potentially limiting the value internal audit adds to an organization.
• Constrained resources necessitate careful analysis and evaluation of factors for selecting auditable units.

Purpose of the Study:

• To propose an integrated risk-based internal audit planning framework that aims to add more value to organizations.
• To develop a multi-stage framework that supports the creation of a value-added annual audit plan.
• To assist audit departments in achieving multiple objectives beyond just risk management.

Main Methods:

• A combined Analytic Hierarchy Process (AHP), Fuzzy Comprehensive Evaluation (FCE), and Weighted Multi-Choice Goal Programming (WMCGP) approach is utilized.
• The framework integrates risk assessment of auditable units with audit activity selection and resource allocation.
• The model incorporates both qualitative and quantitative decision criteria for comprehensive evaluation.

Main Results:

• A real-life case study demonstrates the development of an integrated risk-based annual audit plan.
• Sensitivity analysis validates the effectiveness and robustness of the proposed approach.
• The proposed framework proves to be a valuable tool for internal audit planning.

Conclusions:

• The integrated framework enhances internal audit planning by considering multiple objectives and value creation.
• The methodology offers a systematic approach to selecting audit activities and allocating resources effectively.
• The study's implications extend to various other selection and allocation problems in different domains.