ENHANCING INTERNAL FINANCIAL AUDIT MECHANISMS IN RAILWAY TRANSPORT ENTERPRISES BASED ON INTERNATIONAL STANDARDS: EVIDENCE FROM UZBEKISTAN

Abstract

The transition of state-owned railway monopolies toward global financial transparency requires a paradigm shift in internal auditing—from traditional transaction vouching to a risk-based approach. This study aims to develop an improved internal financial audit mechanism for railway transport enterprises in Uzbekistan, aligned with the Institute of Internal Auditors (IIA) International Standards. Utilizing a mixed-methods approach, this paper analyzes the financial reporting cycles and internal control environments of the railway sector. A customized Audit Risk Assessment Model is applied to high-risk accounting areas, specifically capital expenditures and inventory (fuel) management. The findings reveal that traditional compliance-based audits consume 70% of audit resources on low-risk substantive testing. The proposed risk-based framework redistributes these resources, reducing mechanical testing time by 40% while increasing the detection rate of material misstatements in high-risk zones. The study concludes that integrating the IIA framework and COSO internal control models into the railway’s accounting systems significantly mitigates financial risks. Practical implications suggest that enterprise management must mandate IT-integrated continuous auditing and establish independent audit committees to ensure the integrity of financial reporting.