Audit risk assessment in small enterprises gaps and challenges
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Published:
Aug 3, 2026
Keywords:
Audit challenges, Audit gaps, Audit quality, Audit risk assessment, Small enterprises
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Acounting
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Abstract
The study is intended to explore the implementation of audit risk assessment in small enterprises and to identify the gaps and practical challenges that auditors face. A qualitative descriptive approach was adopted with data collection through interviews, observations and document analysis of public accountants. The findings suggest that although the risk assessment procedures are conceptually in line with auditing standards, their implementation in practice is still sub-optimal. There are material deficiencies in knowledge of the entity, assessment of internal controls, setting of materiality and retention of adequate audit documentation. Small enterprises are more likely to have higher inherent and control risks due to weak internal control systems, limited financial records and low accounting competence. All these factors increase the probability of material misstatements. Auditors are also faced with unreliable data and unstructured business processes, which hinder the effective implementation of risk-based auditing. Under such circumstances the auditor may have to rely more on professional judgment which may impact on the consistency and reliability of the audit. The research stresses the importance of more adaptive and context-sensitive audit approaches that are more relevant to the specific features of small enterprises and pragmatic insights to improve the quality of the audit and the effectiveness of the risk assessment practices.
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How to Cite
Indriana, T., & Widarsono, A. (2026). Audit risk assessment in small enterprises gaps and challenges. Indonesia Auditing Research Journal, 15(3), 300–310. https://doi.org/10.35335/arj.v15i3.686
References
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Božović, D., Perović, N., Aleksić, M., Rašović, I., & Iker, O. (2025). Machine Learning Analysis of Financial Risk Dynamics in Micro-, Small, and Medium Enterprises. Risks, 13(12). https://doi.org/10.3390/risks13120240
BRANDAS, C., STIRBU, D., & DIDRAGA, O. (2013). Integrated Approach Model of Risk, Control and Auditing of Accounting Information Systems. Informatica Economica, 17(4/2013), 87–95. https://doi.org/10.12948/issn14531305/17.4.2013.08
Chasan-Taber, L. (2014). Study Design and Methods. Writing Dissertation and Grant Proposals, 153–178. https://doi.org/10.1201/b16851-12
Cristescu, M. P. (2018). The Audit of SME’s Informatics Systems. In M. S.C., O. C., & O. R. (Eds.), Springer Proceedings in Business and Economics (pp. 151–158). Springer Science and Business Media B.V. https://doi.org/10.1007/978-3-319-71876-7_13
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Gustina, I. (2020). Analysis of factors affecting implementation of entity financial accounting standards without public accountability (Sak etap) in middle small micro businesses (umkm) district in indragiri district region. Proceedings of the International Conference on Industrial Engineering and Operations Management, (August).
Hudakova, M., Masar, M., Buganova, K., & Mocova, L. (2023). Fostering Entrepreneurship through the Assessment of Business Risks for SMEs in V4 Countries. Engineering Economics, 34(4), 384–396. https://doi.org/10.5755/j01.ee.34.4.29412
Irsanto, M. I., Sardi, I. L., & Wibowo, Y. F. A. (2025). Document Management System Interface Design for MSME General Audit Process with Goal-Directed Design Method. 2025 International Conference on Data Science and Its Applications (ICoDSA), 559–564. https://doi.org/10.1109/ICoDSA67155.2025.11157507
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Karla M. Johnstone, Audrey A. Gramling, L. E. R. (2019). Auditing a Risk-Based Approach To Conducting a Quality Audit Auditing.
Lukason, O., & Camacho-Miñano, M.-M. (2019). Bankruptcy risk, its financial determinants and reporting delays: Do managers have anything to hide? Risks, 7(3). https://doi.org/10.3390/risks7030077
Mansour, A. Z. A., Alkhuzaie, A. S. H., Asad, M., Campbell, A. C., Asif, M. U., & Sulaiman, M. A. B. A. (2025). Is Corporate Governance Important for Financial Performance? Evidence from Jordanian Small and Medium Enterprises. International Journal of Economics and Management, 19(2), 231–248. https://doi.org/10.47836/ijeam.19.2.06
Moeller, R. (2012). IT Audit, Control, and Security. In IT Audit, Control, and Security. https://doi.org/10.1002/9781118269138
O. Ray Whittington, K. P. (2022). Principles of Auditing & Other Assurance Services. In McGraw Hill LLC (Twenty-sec, Vol. 6, Number August).
Rahariyanto, B. S., & Rahayu, D. (2022). Analysis of Application of Cash Receipts Accounting Information System in Improving Internal Control. Indonesian Journal of Innovation Studies, 20, 1–17. https://doi.org/10.21070/ijins.v20i.745
Raqee, A., Ateeq, A., Al-Zubaidi, R., Abdulsamad, A., Milhem, M., & Al Samarai, B. (2025). Influence of Risk Reduction and Hedging on Project Management: Internal Control Mediator in Iraqi SMEs Construction. In Studies in Systems, Decision and Control (Vol. 234, pp. 873–899). Springer Science and Business Media Deutschland GmbH. https://doi.org/10.1007/978-3-031-84636-6_78
Saputri, D. A. (2023). PERENCANAAN AUDIT LAPORAN KEUANGAN PADA KANTOR AKUNTAN PUBLIK. Journal of Accounting Taxing and Auditing (JATA), 4(2). https://doi.org/10.57084/jata.v4i2.1183
Spira, L. F., & Page, M. (2003). Risk management: The reinvention of internal control and the changing role of internal audit. Accounting, Auditing & Accountability Journal, 16(4), 640–661. https://doi.org/10.1108/09513570310492335
Sugiyono. (2024). Quantitative, Qualitative, and R&D Research Methods. Alfabeta.
Susan, M. (2020). Financial literacy and growth of micro, small, and medium enterprises in west java, indonesia. In International Symposia in Economic Theory and Econometrics (Vol. 27, pp. 39–48). Emerald Group Publishing Ltd. https://doi.org/10.1108/S1571-038620200000027004
Țîrcovnicu, G.-I., & Haţegan, C.-D. (2023). The Audit Risk Assessment of European Small- And Mid-Size Enterprises. Journal of Risk and Financial Management, 16(3), 158. https://doi.org/10.3390/jrfm16030158
Tran, Y. T., Tran Thi Hong, D., & Hoang, T. C. (2025). Accounting service quality and firm performance: the full mediating role of accounting information quality in small and medium enterprises. Pacific Accounting Review, 38(2), 405–425. https://doi.org/10.1108/PAR-12-2024-0339
Ulupui, I. G. K. A., Zairin, G. M., Musyaffi, A. M., & Sutanti, F. D. (2024). Navigating uncertainties: a tri-factorial evaluation of risk management adoption in MSMEs. Cogent Business and Management, 11(1). https://doi.org/10.1080/23311975.2024.2311161
Utami, I. D., Santosa, I., & Vidya Leila, M. R. (2021). Priority resilience strategy for micro, small, and medium enterprises for dealing with natural disasters. International Journal of Disaster Risk Reduction, 55. https://doi.org/10.1016/j.ijdrr.2021.102074
Wood, J., Brown, W., & Howe, H. (2019). IT Auditing and Application Controls for Small and Mid-Sized Enterprises, Revenue, Expenditure, Inventory, Payroll, and More. In Sustainability (Switzerland) (Vol. 11, Number 1). John Wiley & Sons, Inc. All.
Zulfikar, R., Astuti, K. D., & Ismail, T. (2022). Financial Accounting Standards for Micro, Small, and Medium Entities (SAK EMKM) in Indonesia: Factors, and Implication. Quality - Access to Success, 23(189), 128–143. https://doi.org/10.47750/QAS/23.189.15
Anggraeni, S. N., Marlina, T., & Suwarno, S. (2021). Penyusunan Laporan Keuangan Pada UMKM Berdasarkan SAK EMKM. Jurnal Aplikasi Bisnis Kesatuan, 1(2), 253–270. https://doi.org/10.37641/jabkes.v1i2.1342
Ariani, Y., Widjaja, W., Alfredo, A., & Marcella, V. (2024). Successful Factors in Implementing Financial Accounting Standard (FAS) of MSMEs: A Study in Tangerang, Indonesia. Quality - Access to Success, 25(199), 173–182. https://doi.org/10.47750/QAS/25.199.19
Bérard, C., & Claveau, N. (2017). Risk Management: A Lever for Organizational Change for SMEs? In Risk Management: Lever for SME Development and Stakeholder Value Creation (pp. 107–125). wiley. https://doi.org/10.1002/9781119475002.ch6
Božović, D., Perović, N., Aleksić, M., Rašović, I., & Iker, O. (2025). Machine Learning Analysis of Financial Risk Dynamics in Micro-, Small, and Medium Enterprises. Risks, 13(12). https://doi.org/10.3390/risks13120240
BRANDAS, C., STIRBU, D., & DIDRAGA, O. (2013). Integrated Approach Model of Risk, Control and Auditing of Accounting Information Systems. Informatica Economica, 17(4/2013), 87–95. https://doi.org/10.12948/issn14531305/17.4.2013.08
Chasan-Taber, L. (2014). Study Design and Methods. Writing Dissertation and Grant Proposals, 153–178. https://doi.org/10.1201/b16851-12
Cristescu, M. P. (2018). The Audit of SME’s Informatics Systems. In M. S.C., O. C., & O. R. (Eds.), Springer Proceedings in Business and Economics (pp. 151–158). Springer Science and Business Media B.V. https://doi.org/10.1007/978-3-319-71876-7_13
Darwish, S., & Al Astal, A. Y. M. (2025). The Impact of Corporate Governance on Firm’s Performance: Empirical Evidence from Bahrain SMEs. In Studies in Big Data (Vol. 170, pp. 691–701). Springer Science and Business Media Deutschland GmbH. https://doi.org/10.1007/978-3-031-83915-3_57
Gopinath, S., Alagu Sundaram, V. R., Sheshathri, R., & Narashiman, K. (2018). Frame work of conceptual model for quality management in small and medium enterprises. International Journal of Enterprise Network Management, 9(2), 143–155. https://doi.org/10.1504/IJENM.2018.093709
Gustina, I. (2020). Analysis of factors affecting implementation of entity financial accounting standards without public accountability (Sak etap) in middle small micro businesses (umkm) district in indragiri district region. Proceedings of the International Conference on Industrial Engineering and Operations Management, (August).
Hudakova, M., Masar, M., Buganova, K., & Mocova, L. (2023). Fostering Entrepreneurship through the Assessment of Business Risks for SMEs in V4 Countries. Engineering Economics, 34(4), 384–396. https://doi.org/10.5755/j01.ee.34.4.29412
Irsanto, M. I., Sardi, I. L., & Wibowo, Y. F. A. (2025). Document Management System Interface Design for MSME General Audit Process with Goal-Directed Design Method. 2025 International Conference on Data Science and Its Applications (ICoDSA), 559–564. https://doi.org/10.1109/ICoDSA67155.2025.11157507
Jones, S., & Free, C. (2026). What accountants need to know about artificial intelligence and machine learning: a review and call for future research. Journal of Accounting Literature, 48(5), 133–158. https://doi.org/10.1108/JAL-12-2025-0693
Karla M. Johnstone, Audrey A. Gramling, L. E. R. (2019). Auditing a Risk-Based Approach To Conducting a Quality Audit Auditing.
Lukason, O., & Camacho-Miñano, M.-M. (2019). Bankruptcy risk, its financial determinants and reporting delays: Do managers have anything to hide? Risks, 7(3). https://doi.org/10.3390/risks7030077
Mansour, A. Z. A., Alkhuzaie, A. S. H., Asad, M., Campbell, A. C., Asif, M. U., & Sulaiman, M. A. B. A. (2025). Is Corporate Governance Important for Financial Performance? Evidence from Jordanian Small and Medium Enterprises. International Journal of Economics and Management, 19(2), 231–248. https://doi.org/10.47836/ijeam.19.2.06
Moeller, R. (2012). IT Audit, Control, and Security. In IT Audit, Control, and Security. https://doi.org/10.1002/9781118269138
O. Ray Whittington, K. P. (2022). Principles of Auditing & Other Assurance Services. In McGraw Hill LLC (Twenty-sec, Vol. 6, Number August).
Rahariyanto, B. S., & Rahayu, D. (2022). Analysis of Application of Cash Receipts Accounting Information System in Improving Internal Control. Indonesian Journal of Innovation Studies, 20, 1–17. https://doi.org/10.21070/ijins.v20i.745
Raqee, A., Ateeq, A., Al-Zubaidi, R., Abdulsamad, A., Milhem, M., & Al Samarai, B. (2025). Influence of Risk Reduction and Hedging on Project Management: Internal Control Mediator in Iraqi SMEs Construction. In Studies in Systems, Decision and Control (Vol. 234, pp. 873–899). Springer Science and Business Media Deutschland GmbH. https://doi.org/10.1007/978-3-031-84636-6_78
Saputri, D. A. (2023). PERENCANAAN AUDIT LAPORAN KEUANGAN PADA KANTOR AKUNTAN PUBLIK. Journal of Accounting Taxing and Auditing (JATA), 4(2). https://doi.org/10.57084/jata.v4i2.1183
Spira, L. F., & Page, M. (2003). Risk management: The reinvention of internal control and the changing role of internal audit. Accounting, Auditing & Accountability Journal, 16(4), 640–661. https://doi.org/10.1108/09513570310492335
Sugiyono. (2024). Quantitative, Qualitative, and R&D Research Methods. Alfabeta.
Susan, M. (2020). Financial literacy and growth of micro, small, and medium enterprises in west java, indonesia. In International Symposia in Economic Theory and Econometrics (Vol. 27, pp. 39–48). Emerald Group Publishing Ltd. https://doi.org/10.1108/S1571-038620200000027004
Țîrcovnicu, G.-I., & Haţegan, C.-D. (2023). The Audit Risk Assessment of European Small- And Mid-Size Enterprises. Journal of Risk and Financial Management, 16(3), 158. https://doi.org/10.3390/jrfm16030158
Tran, Y. T., Tran Thi Hong, D., & Hoang, T. C. (2025). Accounting service quality and firm performance: the full mediating role of accounting information quality in small and medium enterprises. Pacific Accounting Review, 38(2), 405–425. https://doi.org/10.1108/PAR-12-2024-0339
Ulupui, I. G. K. A., Zairin, G. M., Musyaffi, A. M., & Sutanti, F. D. (2024). Navigating uncertainties: a tri-factorial evaluation of risk management adoption in MSMEs. Cogent Business and Management, 11(1). https://doi.org/10.1080/23311975.2024.2311161
Utami, I. D., Santosa, I., & Vidya Leila, M. R. (2021). Priority resilience strategy for micro, small, and medium enterprises for dealing with natural disasters. International Journal of Disaster Risk Reduction, 55. https://doi.org/10.1016/j.ijdrr.2021.102074
Wood, J., Brown, W., & Howe, H. (2019). IT Auditing and Application Controls for Small and Mid-Sized Enterprises, Revenue, Expenditure, Inventory, Payroll, and More. In Sustainability (Switzerland) (Vol. 11, Number 1). John Wiley & Sons, Inc. All.
Zulfikar, R., Astuti, K. D., & Ismail, T. (2022). Financial Accounting Standards for Micro, Small, and Medium Entities (SAK EMKM) in Indonesia: Factors, and Implication. Quality - Access to Success, 23(189), 128–143. https://doi.org/10.47750/QAS/23.189.15
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