| Summary: | The purpose of this paper is to look into the challenges of management of potential operational risk costs by dealing with conflicts of interests and sensitive client situations in audit firms. Furthermore, the author’s goal is to propose a framework addressing those risks proactively and thus minimizing
the potential costs that might arise from such situations. The paper starts with an introduction to the importance of understanding the concepts of conflict of interest situations and sensitive client situations, and why it is often crucial for the leadership and professionals working for audit firms to address the risks arising from them. The author presents a framework, containing policies and
procedures for operational risk management with respect to conflicts of interest and sensitive client situations. The proposed framework is tested via a comprehensive survey among a number of audit firms. The results of the survey show that all of the surveyed companies have implemented at least
some of the proposed policies and procedures. The results also show that there is a general agreement among the leadership teams of the audit firms that adopting a comprehensive operational risk management framework would benefit the audit firms in the long term minimizing its costs.
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