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Problems that should be paid attention to in the risk audit of material misstatement of financial statements
Problems that should be paid attention to in the risk audit of material misstatement of financial statements

In order to adapt to the general trend of economic globalization and international convergence of auditing standards, improve the ability of certified public accountants to cope with auditing risks, and enhance the public's confidence in the auditing industry, the Ministry of Finance issued a new system of professional standards for certified public accountants on February 15, 20xx, which came into effect on February 1 year 10. The audit risk criterion in the practice criterion system enables a new audit risk model, namely: audit risk: material misstatement risk x inspection risk. The model introduces the concept of "material misstatement risk", and divides the material misstatement risk into financial statement risk and identification risk. The risk of material misstatement of financial statements refers to the possibility of material misstatement before the audit of financial statements. The risk of material misstatement at the identified level refers to the possibility of material misstatement in various transactions, account balances, presentation and disclosure before the audit. The risk of material misstatement in auditing financial statements is an important part of the auditing procedure of financial statements. Certified public accountants should pay attention to the audit of the risk of material misstatement of financial statements and take corresponding measures according to the audit results, so as to achieve the audit goal of reasonably ensuring that there is no material misstatement of financial statements. Therefore, certified public accountants should pay attention to the following issues when auditing the risk of material misstatement in financial statements:

First, define the scope and content of the audit.

When auditing the risk of material misstatement in financial statements, it is necessary to clarify the scope and specific content of the audit, which is the basis for auditing the risk of material misstatement in financial statements. The scope of audit involves the audited entity and its environment, which generally includes: First, external factors such as industry situation, legal environment and regulatory environment. The second is the nature of the audited entity and the choice and application of accounting policies. The third is the goal, strategy and related business risks of the audited entity. The fourth is to measure and evaluate the financial performance of the audited entity. Fifth, the internal control of the audited entity. Determining these ranges is of great significance for determining the audit importance level, identifying the misstatement areas in financial statements and designing and implementing further audit procedures.

Within the above scope, the certified public accountant shall determine the specific contents of the audit according to the specific circumstances of the audit business of the audited entity and the relevant audit experience.

In terms of industry status, we should grasp the following audit contents: (1) the market supply and demand and competition of the industry where the audited unit is located; Seasonality and periodicity of production and operation; Development and change of product production technology; Energy supply and cost; Key indicators and statistics of the industry and so on.

As far as the nature of the audited entity is concerned, the main contents of the audit include: equity structure; Organizational structure; Governance structure; Commercial activities; Financing and investment activities. Auditing the ownership structure is helpful to discover the existence of related party relationship and the appropriateness of related party transaction accounting. Complex organizational structure will lead to problems such as consolidation of financial statements, impairment of goodwill and accounting of long-term equity investment. Therefore, certified public accountants should pay attention to the possible risk of major errors.

The choice and application of accounting policies mainly include the legitimacy and appropriateness of the audited entity's choice of accounting policies. The contents include: accounting treatment methods for major and abnormal transactions; The impact of adopting important accounting policies in areas lacking authoritative standards; When and how to adopt the newly promulgated accounting standards for enterprises and related accounting systems.

In the aspect of internal control, the audit focuses on whether each component of internal control can effectively prevent or discover major misstatements in various transactions, account balances, presentation and disclosure. These elements include control environment, risk assessment process, information system and communication, control activities and control supervision.

II. Effectively use the obtained information related to the risk audit of material misstatement.

The audit of the risk of material misstatement involves a wide range of contents, and the complexity of each content varies. Therefore, in order to obtain the relevant information of the audited entity's risk audit of material misstatement, appropriate methods must be adopted. These methods mainly include: inquiry method, observation and inspection method, analytical procedure method and walk-through method.

There are two main considerations in the application of the method: one is "clever use". Different methods have different scope of application, and the same method is used in different occasions and ways. If you ask, you should consider the differences in content and skills of people of different categories and levels. More "guided" methods should be adopted, and the design should be done in advance when using. For example, when inquiring about fraud audit, don't directly discuss fraud with managers who may be involved in fraud, but design some standard questions for relevant personnel to answer, so as to obtain relevant clues about the audited items, so as not to arouse the vigilance of fraudsters. The second is "combined use". Although various methods have their scope of application, they do not serve the audit process "independently", but are combined with other methods. For example, in order to obtain audit evidence for evaluating the design and implementation of internal control, it is not enough to make an objective evaluation only by "observation", and it should be combined with other methods to improve the "combination effect" of the use of various methods.

Third, measure the risk level of material misstatement reasonably.

From the audit risk model: audit risk = material misstatement risk × inspection risk, we can know that under a given audit risk, inspection risk is negatively correlated with the assessed material misstatement risk level. The higher the risk level of material misstatement, the lower the acceptable inspection risk level. Certified public accountants must design and implement more audit procedures, collect more audit evidence, and control the inspection risk at an acceptable low level, and vice versa. It can be seen that it is a judgment process to reasonably estimate the risk level of material misstatement at the reporting level, in order to save the audit cost and reduce the audit risk as much as possible. Therefore, the audit should consider the following two points:

(1) The risk level of material misstatement at the statement level should not be simply set as the highest value, but should be directly tested substantively.

If we simply set the risk level of material misstatement to the highest value, and then directly carry out substantive testing, it will have adverse consequences: First, it will make the audit procedure of "knowing the audited entity and its environment" go through the motions, which will easily make the material misstatement "hidden" and leave hidden dangers for the audit work. The second is to increase the audit cost. Direct substantive testing is undoubtedly blind, with a wide range of tests and many samples, resulting in a waste of audit resources.

(2) The risk level of material misstatement should be reasonably determined.

In order to reasonably determine the risk level of material misstatement at the financial statement level, certified public accountants should first comprehensively analyze the specific contents within the audit scope, evaluate its impact on the financial statement as a whole and its impact degree, and then choose certain methods to determine the risk level of material misstatement at the financial statement level.

In practical application, according to the audit risk model, we can roughly estimate the risk level of material misstatement at the reporting level from two aspects:

1. According to the frequency and severity of risks, the risk level of material misstatement is divided into three levels: high, medium and low. Under a given audit risk level, the corresponding inspection risks are low, medium and high. According to the understanding of the audited entity and environment and the in-depth analysis of the specific evaluation content, the certified public accountant judges the corresponding level of audit business, and then designs and implements the overall plan of further audit procedures.

2. Use the "scoring method" to determine. Scoring method is to score the factors that affect the risk of material misstatement at the selected financial statement level, and give different scores according to their influence degree, and then investigate and understand the actual situation of the scoring object, and score one by one. If the percentage system is adopted and the score exceeds 80, it is considered as high risk; The score is between 60 and 80, which is considered as moderate risk; If the score is less than 60, the risk is considered low. Similarly, CPAs design and implement the master plan of further audit procedures according to their scores.

Fourth, formulate overall countermeasures.

Because there are many factors that affect the risk of material misstatement at the level of financial statements, and each factor has a wide influence on financial statements, it is generally difficult to be limited to a specific identification. Therefore, after auditing the risk of material misstatement at the level of financial statements, the overall response measures should be taken. These measures mainly include: First, assign some experienced or excellent professional skills to the audit team. The second is to emphasize to the members of the audit team that professional skepticism should be maintained in the process of collecting and evaluating audit evidence. The third is to strengthen the supervision and guidance of the audit team and its personnel, and strictly operate the procedures and norms. Fourth, take an "unexpected move" to implement an audit procedure, so as to prevent the auditee from knowing the procedure in advance and affecting the audit matters. Fifth, consider completely changing the nature, time and scope of the audit procedure to be implemented.

Verb (the abbreviation of verb) is further audit procedures who has a great risk of misreporting in design recognition.

The risk of material misstatement in financial statements and the overall measures taken have a great impact on the implementation of further audit procedures. Therefore, certified public accountants should design further audit procedures for the risk of material misstatement at the identified level in order to reduce the inspection risk to an acceptable level.

Further audit procedures refers to the audit procedures, including control tests and substantive procedures, when the risks of material misstatement are found in various transactions, account balances, presentations and disclosures. When designing further audit procedures, certified public accountants should consider the following factors: first, the possibility of material misstatement; Second, the importance of risk; Third, the characteristics, account balance, presentation and disclosure of various transactions; The fourth is the nature of the specific control taken by the audited entity. In particular, manual control and automatic control should be distinguished.

Further audit procedures's design is mainly to determine the nature, time and scope of further audit procedures.

(a) Determine the nature of further audit procedures.

The nature of further audit procedures refers to the purpose and type of further audit procedures. The purpose of this paper is to determine the effectiveness of internal control application through control testing, or to find major misstatements at the identification level through substantive procedures. Type describes the technical means used in the further audit procedure, including inspection, observation, inquiry, confirmation, recalculation, re-execution and analysis of the procedure. Certified public accountants should choose further audit procedures according to the identified level of misstatement risk. The higher the risk, the higher the reliability of obtaining audit evidence through substantive procedures, thus affecting the types of audit procedures.

(2) Determine the time in further audit procedures.

Further audit procedures's time refers to when to implement further audit procedures, whether at the end of the period or in the middle. When determining the implementation, we should pay attention to the following matters: control the environment; The nature and importance of misstatement risk. The period related to the audit evidence. Generally speaking, when the risk of material misstatement is high, certified public accountants should consider implementing substantive procedures at the end of the period. When the risk of material misstatement is not high, we can consider implementing further audit procedures during this period. The mid-term executive meeting helps certified public accountants to find major problems in the early stage of audit work and solve them in time. What needs to be clear is that if further audit procedures are implemented during this period, certified public accountants should also obtain audit evidence for the remaining period.

(3) Determine the scope of further audit procedures.

The scope of further audit procedures refers to the number or scale of audit procedures implemented. When determining the scope of audit procedures, certified public accountants should consider the following factors: the level of audit importance, the risk of material misstatement assessed and the degree of assurance of the plan. When the degree of assurance increases and the risk of material misstatement increases, certified public accountants should expand the scope of audit procedures.

Six, pay attention to the internal relationship between the two levels of major misstatement risk audit.

From the final appearance of material misstatement, the risk of material misstatement at the level of financial statements is related to the identification of specific types of transactions, account balances and presentations, and may also be related to multiple specific identifications. Therefore, we should pay attention to the internal relationship between the financial statement level and the audit of major misstatement risk at the identification level. On the one hand, when auditing the risk of material misstatement at the reporting level, certified public accountants should be linked to the areas where misstatement may occur at the identification level and "linked" to the business links where misstatement may occur. In this way, the audit of major misstatement risk at the report level is targeted, which provides a "direction" for the audit of major misstatement risk at the identification level. On the other hand, when auditing the risk of material misstatement at the identification level, the identification level of material misstatement risk at the reporting level should be considered to improve the pertinence of the audit of material misstatement risk at the identification level. Because the audit of material misstatement risk at the identification level is conducted under the guidance of the audit of material misstatement risk at the statement level, this can avoid the blindness of the audit of material misstatement risk at the identification level, which is not only conducive to the rational use of audit resources, but also conducive to the joint efforts of the two levels to achieve the audit goal of reasonably ensuring that there is no material misstatement in financial statements.

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