Integration of internal control and risk culture in azerbaijani smes

Xülasə

In this paper, we consider the issues related to the development of the internal auditing system in Azerbaijani small and medium-sized enterprises (SMEs) in the context of the integration of risk culture, behavioral auditing and internal control. Currently, the practice of conducting internal auditing is limited in terms of SMEs to the checking of financial documentation, taxation compliance and conducting control procedure. Meanwhile, many risks in small and mediumsized businesses are connected to human factors, informal relations between managers, poor separation of responsibilities, ambiguous ethical norms and individuality of decision-making processes. Therefore, the main aim of the research is to develop the concept of internal auditing combining control functions of internal auditing and behavioral audit principles and to justify implementation mechanism phases for Azerbaijani SMEs. The research methodology is based on the systematic literature review, normative and institutional analysis, interpretation of COSO components with behavioral criteria and the methods of conceptual model development. It is found out that Azerbaijan does have a legislative framework for internal auditing but it is not implemented as the behavior of institution yet. The author proposes an «auditable» for SMEs «behavioral internal audit package» which contains risk register, ethical control map, mini audits of crucial processes, simple data analytics, outsourcing/co-sourcing, accountability mechanisms. The conclusion drawn by the author of the paper is that behavioral auditing should be developed as the sub-field of auditing promoting transparent growth, lowering fraud risks and improving creditworthiness of SMEs in Azerbaijan